Education and the poverty trap in rural China

Education and the poverty trap in rural China

Relationships involving education and income forming a system

This paper uses data from rural China to examine the relationship between income (or other dimensions of poverty) and education. Looking at enrolment, the effects of education on poverty, and testing seventeen hypothetical relationships between different variables. These variables include health, household and individual income, access to credit, completion rates, educational quality, parental educational levels, community and individual enrolment rates, and subjective well-being.

Looking at the determinants of enrolment, the authors find that poverty negatively affects the quality of education, and in turn poor quality education affects supply and demand rates in enrolment. Demand falls due to the perceived lower rate of return to education, and supply to higher education falls due to failure to succeed at entrance exams. The financial returns to education are shown to vary depending on household and community income, providing further evidence of a poverty trap.

By breaking these types of interactions down into the seventeen interrelated hypotheses, the authors are able to demonstrate that such interactions combine to create a system of mutually reinforcing relationships, perpetuating an education-poverty, income-poverty trap.

While the paper shows that education can play a role in reducing poverty, the authors call for more research to identify the causal relationships within the system in order to better inform policymakers. The paper questions, for example, whether simply increasing educational enrolment would make a difference, or whether a range of complementary policy interventions would be required in order to have a significant impact on both education and income. The authors argue that the correct policy interventions could generate a positive cumulative reaction among the variables, with improvements in one area starting a positive cycle of improvement in other areas.

The authors do not attempt to suggest policy prescriptions but the research does provide some empirical evidence that education plays a significant role in the persistence of, and potential escape from, a poverty trap. In terms of policy implications for China, the authors recommend that more tax revenue is decentralised and redistributed to household level, possibly through conditional subsidies aimed at the poor and linked to education, such as the Progresa scheme introduced in Mexico. However, the authors stress that positive impacts are conditional upon improving the quality of education available.