This is an ambitious attempt to view the relationships involving education and income as forming a system, and one that can generate a poverty trap. The setting is rural China, and the data are from a national household survey for 2002, designed with research hypotheses in mind. Enrolment is high in rural China by comparison with most poor rural societies, but the quality of education varies greatly. There are three main strands to the paper. One examines the determinants of enrolment, and finds that poverty has an adverse effect on both the quality and quantity of education – so contributing to a poverty trap. The second examines the effects of education. It shows how and why the returns to education vary according to household and community income – so also contributing to a poverty trap. The third strand brings no fewer than 17 estimated relationships together as a system, and poses the question: can education break the vicious circle of poverty? The implications for poverty analysis and for educational policy are considered.
