The Royal Swedish Academy of Sciences, which decides the award technically known as the Sveriges Riksbank Prize in Economic Sciences, said the winners had introduced "a new approach to obtaining reliable answers about the best ways to fight global poverty," reported the BBC.
It said they had broken the complex issue into "smaller, more manageable questions," making it easier to tackle.
"As a direct result of one of their studies, more than five million Indian children have benefited from effective programmes of remedial tutoring in school," the Academy said.
"Another example is the heavy subsidies for preventive healthcare that have been introduced in many countries," it added.
Born in 1961 in Mumbai, Bannerjee is a Ph.D. from Harvard University and a Professor of Economics at the Massachusetts Institute of Technology (MIT).
Born in 1972, Duflo is the second woman and the youngest person to be awarded the Prize in Economic Sciences, which was not among the five original Nobels and was instituted by the Swedish central bank "in memory of Alfred Nobel" in 1969.
Also a professor at the MIT, Duflo said she is "humbled" by her success in winning the Nobel prize for economics and hopes it will "inspire many, many other women", the BBC reported.
"I hope showing that it is possible for a woman to succeed and be recognised for success is going to inspire many, many other women to continue working and many other men to give them the respect they deserve like every single human being," she said.
The trio's work has focused on the poor communities in India and Africa, and their research show which investments in key areas like education and healthcare are worth making and have the biggest impact on the lives of the poorest people.
( With inputs from IANS )