Economic and social fronts have seen much progress over the last two decades; per capita GDP has doubled in the poorest countries, which have seen child mortality halved, school enrolment reaching 80 per cent or more.
Yet, half of the world's children leave schools without basic literacy and numeracy skills; 700 million people live on extremely low incomes, 5 million children die before their fifth birthday from diseases that can be cured with simple and cheap treatment.
Why? Where have billions of dollars in aid gone?
This year's Nobel Laureates in economics spent 20 years to find answers to these questions and devise a new approach to deal with global poverty.
They have shown how the problem of global poverty can be tackled by breaking it down into a number of smaller – but more precise – questions at individual or group levels. These development economists have taken economics out of the lab and into the field to discover the causes of poverty and means to eradicate it.
And extensive field experiments have showed Michael Kremer, Abhijit Banerjee and Esther Duflo how new approaches improve quality of education and health, and thus empower low-income rural people to fight poverty.
They started first with education to see which interventions increase educational outcomes at the lowest cost.
In the mid-1990s, Michael Kremer and his colleagues researched in rural western Kenya in order to answer these kinds of questions to examine whether access to more textbooks, or free school meals increase pupils' results.
They took a large number of schools and divided them into different groups—giving more textbooks to some schools and free school meals to some.
Education: The field experiments showed that neither more textbooks nor free school meals made any difference to learning outcomes.
If the textbooks had any positive effect, it only applied to the very best pupils, while weaker ones fell behind.
In their experiments, Banerjee and Duflo have clearly showed that targeted extra tutoring programmes for weak pupils had strong positive effects.
Schools in Mumbai and Vadodara were given access to new teaching assistants who helped the weakest pupils improve their studies.
They found that pupils who had teachers on short-term contracts had significantly better test results, but that having fewer pupils per permanently employed teacher had no significant effects.
These programmes have now reached more than 100,000 Indian schools.
Kremer and his two colleagues in the series of field studies in India and Kenya have found that the primary problem in many low-income countries is not a lack of resources. Instead, the biggest problem is that curriculum and teaching are not sufficiently adapted to the pupils' needs.
There is a high level of absenteeism among teachers and educational institutions are generally weak.
These early studies were followed by many new field experiments in other countries, focusing on important areas such as health, access to credit, and the adoption of new technology.
The three Laureates were at the forefront of this research. Due to their work, field experiments have become development economists' standard method when investigating the effects of measures to alleviate poverty.
Overall, this new, experiment-based research on education in low-income countries shows that additional resources are, in general, of limited value. However, educational reforms that adapt teaching to pupils' needs are of great value.
Improving school governance and demanding responsibility from teachers who are not doing their job are also cost-effective measures.
Health: One important issue is whether medicine and healthcare should be charged for and, if so, what they should cost. A field experiment by Kremer and co-author investigated how the demand for deworming pills for parasitic infections was affected by price.
They found that 75 per cent of parents gave their children these pills when the medicine was free, compared to 18 per cent when they cost less than a US dollar, which is still heavily subsidised.
Subsequently, many similar experiments have found the same thing: poor people are extremely price-sensitive regarding investments in preventive healthcare.
Low service quality is another explanation why poor families invest so little in preventive measures. One example is that staff at the health centres that are responsible for vaccinations are often absent from work.
Banerjee and Duflo investigated whether mobile vaccination clinics – where the care staff were always on site – could fix this problem. Vaccination rates tripled in villages in Indian state of Rajsthan with greater access to mobile clinics. The
rate doubled when families received a bag of lentils as a bonus when they vaccinated their children. The total cost per vaccination actually halved, despite the additional expense of the lentils.
Microcredit: Development economists have also used field experiments to evaluate programmes that have already been implemented on a large scale.
One example is the massive introduction of microloans in various countries, which has been the source of great optimism.
Banerjee and Duflo performed an initial study on a microcredit programme that focused on poor households in the Indian metropolis of Hyderabad.
Their field experiments showed rather small positive effects on investments in existing small businesses, but they found no effects on consumption or other development indicators, neither at 18 nor at 36 months.
Similar field experiments, in countries such as Bosnia-Herzegovina, Ethiopia, Morocco, Mexico and Mongolia, have found similar results.
The researchers were upbeat with the results of their field experiences, which prompted them to advocate for changing the approaches to poverty alleviation.
In a public lecture on "Social experiments to fight poverty" in February 2010, Esther Duflo questioned the effectiveness of aid in poverty eradication. She asked: You want to spend it on the poor. Do you believe the people who tell you that all we need to do is to spend money? Or do you believe the people who tell you that aid is not going to help, on the contrary it might hurt, it might exacerbate corruption, dependence, etc.?
She points out: Lots of money have been spent on immunization, and yet every year at least 25 million children do not get the immunization they should get. Malaria cure is known to us. Bed nets, treated with insecticide, are not much costly. Still, the disease kills almost 900,000 people every year.
Duflo wonders: the technology is there, the infrastructure is there, and yet it doesn't happen. Why?
She believes that the poor people do not want to get used to handouts and free things, they want easy-to-get service, some motivation and a bit incentives, a little credit to buy things like bed nets.
She cited her field experiences of immunization coverage in India's Rajsthan and said the coverage was low "not because the vaccines were not there, or not because parents do not care about their kids."
Duflo believes that poverty alleviation is a long, slow process. "There's no silver bullet. You cannot helicopter people out of poverty."
As modern medicine is saving millions of lives every year, we can do the same thing for poor people, she concludes.
But right approaches need to be chosen first. Otherwise, "we are not any better than the Medieval doctors and their leeches. Sometimes the patient gets better, sometimes the patient dies," she warns.