Replicating replication : due diligence in Roodman and Morduch's replication of Pitt and Khandker (1998)

"The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence,"by David Roodman and Jonathan Morduch (2011) is the most recent of a sequence of papers and postings that seeks to refute the findings of the Pitt and Khandker (1998) article"The Impact of Group-Based Credit on Poor Households in Bangladesh: Does the Gender of Participants Matter?"that microcredit for women had significant, favorable effects on poverty reduction. In this paper the authors show that these latest Roodman and Morduch claims are based on seriously flawed econometric methods and theory and a lack of due diligence in formulating models and interpreting output from packaged software. On the basis of Roodman and Morduch's preferred two-stage least squares regression, an alternative calculation of the standard errors would lead one to conclude that the problem with Pitt and Khandker is that they underestimate the positive and statistically significant effect of women's credit on household consumption. As in their previous efforts, the methods of Roodman and Morduch are shown to bias the findings in the direction of rejecting the results of Pitt and Khandker. We also further examine two aspects of our instrumental variable approach that have been attacked by Roodman and Morduch. The first is the validity of the exclusion restrictions underlying the use of interactions between program choice and the set of exogenous variables (including the village fixed effects) as instruments. The second is the application of the"one-half acre"program eligibility rule. The authors show that identification does not require both of these, and present new results dropping each assumption in turn. The results originally reported in the Pitt and Khandker paper hold up extremely well in this new analysis.