This study measures the relative role of poverty and scholastic ability on education attainment in developing countries, where a substantial portion of the population still live in poverty and poor people are markedly credit constrained. Different from most studies in developing countries, this paper uses a multiple-wave and long-spanning panel dataset that follows a cohort of children beginning from primary school until they are well over schooling age. We find that poverty has a statistically-significant and negative effect on junior high attainment, while it has a negligible effect on senior high completion. In contrast, scholastic ability plays no role in ensuring junior high completion but is crucial in increasing a child’s chance to graduate from senior high school. In addition, we find that high- and low-ability poor children have a similarly low chance of finishing junior high school. Based on our findings, we formulate several policy recommendations to increase education attainment.
Keywords: poverty, scholastic ability, education, Indonesia
JEL Classifications: I21, 015