Determinants of Education Attainment in Developing Countries: Can Higher Skills Compensate for Poverty?

This study measures the relative role of poverty and cognitive skills 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 skills accrued by an individual at the time he or she completes primary school has a large and positive effect on secondary school completion. Furthermore, our results show that a higher skill is able to compensate for the adverse effect of poverty on junior secondary school attainment. Finally, the effect of poverty on senior secondary completion is small and statistically insignificant.