How Do We Solve Extreme Poverty?

Nov 4, 2019 By Ritu A, Writer
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Can you imagine people living on a meager amount of less than $1.90 a day? This is the definition of extreme poverty, and according to the World Bank, roughly 736 million people lived under these conditions. 

So far, attempts to address the global poverty crisis have focused on immediate solutions instead of understanding the core reasons behind it. 

Three researchers at MIT and Harvard have developed a rigorous way of measuring whether an intervention to solve poverty works and how to measure its impact.  For their work, Abhijit Banerjee (MIT), Esther Duflo (MIT), and Michael Kremer (Harvard) were recently awarded the Nobel Prize in Economics. 

What Is Development Economics?

Economics is the study of how society uses its limited resources, focusing on the production, distribution, and consumption of goods and services. Development economics is a branch of economics that focuses on improving the economic and social conditions in developing countries. 

To further their knowledge of development economics, Banerjee, Duflo and Kremer used a scientific method that consists of these steps: asking a question, doing background research, constructing a hypothesis, testing with an experiment, analyzing data, drawing conclusions, and communicating results. 

Previously,  programs and policies to help the poor relied on assumptions such as giving free textbooks to improve the test scores of kids in poor areas. Or giving women living in extreme poverty a microloan of a hundred dollars to start a small business to boost their incomes.

However, just because people’s lives improved after they were given a particular form of aid did not necessarily mean that it was the aid that made an impact on their lives. Unrelated factors, such as a rise in overall economic growth or other aid programs distributed at the same time could have also caused the improvement. 

How To Measure Impact

Recognizing these flaws, the Nobel winners helped develop and popularize a method known as RCT (or Randomized Control Trials). RCT's are commonly used in scientific research. The principle behind RCT is to measure the impact of a particular aid program by comparing it to an otherwise identical “control” group of people who were not given any aid. 

Over recent years, randomized control trials have gained acceptance as a key tool in development research. People are using RCTs to understand the factors that trap people in poverty and to evaluate specific policies and programs for the poor. 

By using randomized control trials, the idea that microloans substantially boost the incomes of poor people was disproved. RCTs also showed that the largest boost to educational outcomes of students in developing countries was not reducing student-teacher ratios, providing free lunches or distributing textbooks. Instead, it was as simple as providing kids with pills that dramatically reduce the number of days they miss school due to stomach infections. 

The research by the Nobel winners gives hope that we can bring more people out of poverty as long as we give them the right resources to do so.

Sources: NPR, World Bank, NY Times, Foreign Policy