The Contrasting Role of Ability and Poverty on Education Attainment: Evidence from Indonesia

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 secondary attainment, while it has a negligible effect on senior secondary completion. In contrast, scholastic ability plays no role in ensuring junior secondary completion but is crucial in increasing a child’s chance to graduate from senior secondary school. In addition, we find that high and low ability poor children have a similarly low chance of finishing junior secondary school. Based on our findings, we formulate several policy recommendations to increase education attainment.