Economics Personal Statement (Aaron Goh)

Max Hartwell said that “economics is, in essence, the study of poverty”. I disagree. I think economics today is, fundamentally, the study and use of incentives to achieve policy goals. However, if what Hartwell meant was that alleviating poverty is the goal of economics, then I concur – it must be the most important aim of socioeconomic policy. Reading Duflo and Banerjee’s ‘Poor Economics’, I found myself increasingly interested in discussions of solutions to poverty. In particular, I am interested in the effects of education on poverty; I believe education is a necessary condition to escape vicious cycles of low education, low skill, and therefore low incomes. I do not believe in a single, miraculous solution to poverty. However, I think that a heterogeneous use of education-driven policies bears the most promising results.

 

I found an appealing theoretical basis for my hypothesis in my A-level studies – Marginal Revenue Productivity (MRP) theory suggests that workers who produce output of higher value will earn higher wages. Furthermore, education changes structural causes, and breaks intergenerational chains of, poverty. Educating children reduces inequality from the get-go, while educating or re-training adults with the right skills grants them access to higher-paying jobs in current demand. Further exploration of empirical research by the Hamilton Project shows that increasing educational attainment will increase average income. Therefore, a sound way to help the poor is to improve access to, and incentive for, education.

 

I was intrigued by Dulo and Banerjee’s counter-intuitive inding that conditional cash transfers were not as effective as unconditional ones at incentivising the poor to send their children to school; this highlighted that policies to increase education for the poor need to be carefully thought out. For instance, one policy that they discuss is making microcredit available to the poor. I initially agreed, since in theory, this would reduce liquidity constraints holding them back from education. However, research by Augsburg et al. on Bosnia found that higher microcredit availability actually reduced the school attendance of 16-19 year olds due to them leaving school to start businesses! The use of econometric analysis, coupled with tools such as the Randomised Control Trials used by Dulo and Banerjee, can help reveal how our policies should be crafted; I look forward to gaining a rigorous understanding of such analysis at an undergraduate level.

 

Inspired by data-driven approaches to uncovering solutions for poverty, I downloaded World Bank time-series for GNI per capita, and gross primary, secondary and tertiary enrolment in America to examine the correlations between these variables. A rudimentary analysis of data for America revealed the R-squared value for a regression of GNI per capita on the three different enrolment variables to be 0.61 at most (for primary enrolment). This suggested to me that while education may be a necessary condition for ameliorating poverty, it is not a sufficient condition; it is dependent on other elements too, which is why Eric Hanushek found that in many cases, simply spending more on education did not accrue significant returns. One such element may be political uncertainty. I once discussed the ongoing civil war in Libya at a Model United Nations Conference; it has shut down schools and exacerbated extreme poverty. Policy solutions here must deal with the differing political reality of the country. All this reaffirmed to me that policy discussions require rich cross-disciplinary handling, something I look forward to learning more of.

 

My tertiary education will be funded by a Malaysian Central Bank scholarship; this opportunity was life changing for someone of lower middle-class income status like myself. How can others access opportunities like this? I hope to gain the rigour and knowledge to answer these questions, beginning with an education in economics.