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

  • Roodman, David
  • Morduch, Jonathan

We replicate and reanalyse the most influential study of microcredit impacts (Pitt and Khandker, 1998). That study was celebrated for showing that microcredit reduces poverty, a much hoped-for possibility (though one not confirmed by recent randomized 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.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/25933/1/wp2013-2.pdf
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Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2013-02.

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Length: 41, 14 p.
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:hit:hitcei:2013-02
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  1. Abhijit V. Banerjee & Esther Duflo, 2008. "The Experimental Approach to Development Economics," NBER Working Papers 14467, National Bureau of Economic Research, Inc.
  2. Angus Deaton, 2010. "Instruments, randomization, and learning about development," Working Papers 1224, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  3. Duvendack, Maren & Palmer-Jones, Richard, 2011. "High Noon for Microfinance Impact Evaluations: Re-investigating the Evidence from Bangladesh," MPRA Paper 27902, University Library of Munich, Germany.
  4. repec:pri:rpdevs:deaton_instruments_randomization_learning_all_04april_2010 is not listed on IDEAS
  5. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
  6. Matthieu Chemin, 2008. "The Benefits and Costs of Microfinance: Evidence from Bangladesh," Journal of Development Studies, Taylor & Francis Journals, vol. 44(4), pages 463-484, April.
  7. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  8. Manuela Angelucci & Dean Karlan & Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco," NBER Working Papers 19119, National Bureau of Economic Research, Inc.
  9. 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.
  10. Mark M. Pitt, 2012. "Gunfight at the Not OK Corral: Reply to ‘High Noon for Microfinance’," Journal of Development Studies, Taylor & Francis Journals, vol. 48(12), pages 1886-1891, December.
  11. Frank Kleibergen & Richard Paap, 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Tinbergen Institute Discussion Papers 03-003/4, Tinbergen Institute.
  12. B.D. McCullough & Kerry Anne McGeary & Teresa D. Harrison, 2008. "Do economics journal archives promote replicable research?," Canadian Journal of Economics, Canadian Economics Association, vol. 41(4), pages 1406-1420, November.
  13. M. M. Pitt & S. R. Khandker, 2002. "Credit Programmes for the Poor and Seasonality in Rural Bangladesh," Journal of Development Studies, Taylor & Francis Journals, vol. 39(2), pages 1-24.
  14. Suresh de Mel & David McKenzie & Christopher Woodruff, 2008. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1329-1372.
  15. James J. Heckman, 2000. "Causal Parameters and Policy Analysis in Economics: A Twentieth Century Retrospective," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 45-97.
  16. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  17. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," CERT Discussion Papers 0706, Centre for Economic Reform and Transformation, Heriot Watt University.
  18. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October.
  19. Pitt, Mark M. & Khandker, Shahidur R., 2012. "Replicating replication : due diligence in Roodman and Morduch's replication of Pitt and Khandker (1998)," Policy Research Working Paper Series 6273, The World Bank.
  20. Joshua Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," NBER Working Papers 8456, National Bureau of Economic Research, Inc.
  21. B. D. McCullough & H. D. Vinod, 2003. "Verifying the Solution from a Nonlinear Solver: A Case Study," American Economic Review, American Economic Association, vol. 93(3), pages 873-892, June.
  22. David McKenzie & Christopher Woodruff, 2008. "Experimental Evidence on Returns to Capital and Access to Finance in Mexico," World Bank Economic Review, World Bank Group, vol. 22(3), pages 457-482, November.
  23. Augsburg, Britta & de Haas, Ralph & Harmgart, Heike & Meghir, Costas, 2014. "Microfinance at the margin: Experimental evidence from Bosnia and Herzegovina," Discussion Papers, Research Unit: Economics of Change SP II 2014-304, Social Science Research Center Berlin (WZB).
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