# 1. INTRODUCTION

One in ten people worldwide lives in extreme poverty. Despite significant achievements in economic growth, the benefits have been distributed unevenly across countries, with poverty becoming more rooted in countries affected by conflict, violence, and weak institutions. The share of the global poor living in fragile and conflict-affected countries increased from 14% in 2008 to 23% in 2015 and is expected to increase to 50% by 2030 (World Bank, 2018). In Afghanistan, the share of people living below the national poverty line increased from 38% in 2011 to 55% in 2016 (Afghanistan Living Conditions Survey, ALCS, 2016). Identifying policies that reduce the growing gap in fragile and conflict-affected areas is therefore critical for reducing poverty.<sup>1</sup> The poor face multiple constraints that reinforce their socioeconomic status. Low levels of human capital endowments and limited access to productive inputs constrain their selfemployment and wage labor opportunities. They are frequently exposed to uninsured risks, both man-made and natural, that are particularly acute in fragile and conflict settings (Dercon, 2008). Persistent poverty and conflict also place a cognitive load on individuals that impairs decision-making and may expose households to further economic duress (Mani et al., 2013; Haushofer & Fehr, 2014; Mullainathan and Shafir, 2013). The ultra-poor in Afghanistan face many of these constraints simultaneously. In the target group for this study,<sup>2</sup> five in six households have an illiterate household head. Four in five households live below the Afghan National Poverty Line of USD 30 (nominal) per person per month (USD 112 PPP).<sup>3</sup> Just 1.5% of households save anything, while two-thirds of households are in debt. Indicators for women paint an even starker picture: less than 4% of primary women in the household can read and write, two in three of these women are depressed, and just over half of eligible girls attend school.

These multiple constraints may give rise to poverty traps, i.e., stable equilibria from which it is difficult to escape unless multiple constraints are relieved simultaneously. For example, human capabilities (e.g., skills) and nonhuman capabilities (e.g., capital) could be complements, and if both are below what is needed for a non-poor equilibrium, cash or other forms of nonhuman capital alone may not reduce poverty. In such cases, multi-dimensional interventions would be needed to reduce persistent poverty (Rosenstein-Rodan, 1943; Murphy et al., 1989; Azarriadis and Stachurski, 2005; Barrett et al, 2019; Buera, Kaboski and

> 1 World Bank Fragility and Conflict and Violence Overview. Accessed on April 29, 2019 from http://www.worldbank.org/en/topic/fragilityconflictviolence/overview. 2 Statistics are derived from the 2016 baseline survey. 3 Throughout the document, monetary amounts are reported in nominal and purchasing power parity (PPP)-adjusted USD terms. The latter is set at 2018 prices using the Afghanistan CPI and PPP conversion factor from the IMF, unless otherwise stated.  Figures in current USD are converted at the exchange rate for the year the data were collected with the IMF exchange rates for the corresponding year: 2016 (for baseline data), 2017 (for implementation), and 2018 (for follow-up data). The exchange rates used are: 1 USD = 67.87 AFN (2016), 1 USD = 68.03 AFN (2017), and 1 USD = 72.08 AFN (2018). All tables report PPP-adjusted amounts only.

2