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The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence

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  • David Roodman
  • Jonathan Morduch

Abstract

We replicate and reanalyse the most influential study of microcredit impacts (M. M. Pitt & S. R. Khandker's, 'The impact of group-based credit on poor households in Bangladesh: Does the gender of participants matter?', published in the Journal of Political Economy, 106, 1998). That study was celebrated for showing that microcredit reduces poverty, a much hoped for possibility (though one not confirmed by recent randomised controlled trials). We show that the original results on poverty reduction disappear after dropping outliers, or when using a robust linear estimator. Using a new program for estimation of mixed process maximum likelihood models, we show how assumptions critical for the original analysis, such as error normality, are contradicted by the data. We conclude that questions about impact cannot be answered in these data.

Suggested Citation

  • David Roodman & Jonathan Morduch, 2014. "The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence," Journal of Development Studies, Taylor & Francis Journals, vol. 50(4), pages 583-604, April.
  • Handle: RePEc:taf:jdevst:v:50:y:2014:i:4:p:583-604
    DOI: 10.1080/00220388.2013.858122
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    References listed on IDEAS

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    1. Phillips, Peter C.B., 2006. "A Remark On Bimodality And Weak Instrumentation In Structural Equation Estimation," Econometric Theory, Cambridge University Press, vol. 22(5), pages 947-960, October.
    2. Orazio Attanasio & Britta Augsburg & Ralph De Haas & Emla Fitzsimons & Heike Harmgart, 2011. "Group lending or individual lending? Evidence from a randomised field experiment in Mongolia," IFS Working Papers W11/20, Institute for Fiscal Studies.
    3. Manuela Angelucci & Dean Karlan & Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco," Working Papers 1026, Economic Growth Center, Yale University.
    4. Manuela Angelucci, Dean Karlan, Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco-Working Paper 330," Working Papers 330, Center for Global Development.
    5. Abhijit Banerjee & Esther Duflo & Rachel Glennerster & Cynthia Kinnan, 2015. "The Miracle of Microfinance? Evidence from a Randomized Evaluation," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 22-53, January.
    6. repec:pri:rpdevs:morduch_microfinance_poor is not listed on IDEAS
    7. Jonathan Morduch, 1998. "Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh," Working Papers 198, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
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    More about this item

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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