On poverty

When you grow up in India, you are bound to see extreme deprivation all around. Impoverished people, children without clothes, mud houses with thatched roofs and missing sanitation are some frequently sighted visuals that have always made me ponder about poverty.

‘Why are people poor?’, ‘Why do they remain poor?’ and ‘What can be done to bring them out of poverty?’ are questions that I was seeking answers to when I decided to pick up Abhijit Banerjee and Esther Duflo’s pioneering work—’Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty‘. The recent Nobel laureates in Economics have done a great job at demystifying the core reasons for poverty and poverty traps.

Randomized Controlled Trials

Their work is based on results from Randomized Controlled Trials (RCTs) done across developing economies such as India, Indonesia, Kenya and Bangladesh. RCTs have been around for quite some time now and were primarily used in medicine for testing the efficiency and side-effect of drugs, however, there has been a gradual increase in their usage in developmental economics over the last couple of decades.

How it works is that two groups are formed at random from a population where one group called the control group is let to continue doing whatever they have been doing while the other group called the intervention group is subjected to an intervention. An intervention is a change that is implemented to test a hypothesis. For eg. introducing mid-day meals should reduce drop-out rates of school children in rural India. Here the control group will not receive mid-day meals whereas the intervention group will receive the same. The dropout rates will then be compared after sufficient time has passed to understand the effect of the intervention on the population.

Trying to understand this research method has left me unconvinced with regards to how practically reliable and scalable the findings are. That is not to say that the insights are not ingenuous—they most definitely are. But when it comes to making generalisations based on them and transforming them into policy making, the task is not as easy. The researchers understand the limitations and explicitly state their assumptions, but policymakers might not read the fine print and that can have consequences.

The following reasons state why RCTs can be unreliable:

Further reading – The value and limitations of Randomised Control Trials in economics – Alok Ray, Unicef on RCTs

Understanding the reasons for poverty

While their RCT based findings might not be entirely accurate, Banerjee and Duflo have been able to highlight some very intuitive reasons that perpetuate the poverty trap through their extensive experience of conducting studies by visiting poverty ridden areas and interacting with people. Some ideas that resonated with me are as follows:

What can be done?

I think we are making fantastic progress. Although it might not seem like that because this progress is not reinforced by the media regularly. Incremental growth doesn’t make for good clickbait headlines, overdramatic representation of how the situation is bad does. (Recommended reading for some optimism around how remarkable our growth story has been – Factfulness: Ten Reasons We’re Wrong About the World – and Why Things Are Better Than You Think).

But there is still a long way to go. The good thing about Poor Economics is that the suggestions in the book are simple to implement and have the potential to have a large impact. Here are some thoughts on how can it be done:


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