the microfinance promise in the past decade microfinance programs have demonstrated that it is possible to lend to low income households while maintaining high repayment rates even without requiring collateral the programs promise a revolution in approaches to alleviating poverty and spreading financial services and millions of poor households are served globally a growing body of economic theory demonstrates how new contractual forms offer a key to microfinance success particularly the use of group lending contracts with joint liability for the most part however high repayment rates have not translated into profits and studies of impacts on poverty yield a mixed picture in describing emerging tensions the paper highlights the diversity of innovative mechanisms beyond group lending contracts the measurement of financial sustainability the estimation of economic and social impacts the costs and benefits of subsidization and the potential to reduce poverty through savings programs rather than just credit the promise of microfinance has pushed far ahead of the evidence and an agenda is put forward for addressing critical empirical gaps and sharpening the terms of policy discussion

why are informal loans still a big deal evidence from north east thailand abstractthis article examines the use and benefit of informal loans for different income groups of rural households in north east thailand using a difference in differences estimation approach which is later complemented by propensity score matching the article shows that different household groups profit from informal loans in different ways poor households increase their asset endowment and in particular farming assets whereas rich households food consumption rises especially if households borrow due to a shock by showing that informal loans serve different households for different purposes this article provides an explanation why they still play an important role

the impact of group lending in northeast thailand abstract much of the literature on group lending focuses on its high repayment rates rather than its goal of promoting borrower welfare most studies that attempt to measure the impact of group lending neglect the issues of self selection and endogenous program placement thus leading to biased estimates of impact one reason for this neglect is the lack of data that would allow for identification of impact this paper surmounts these problems by using data from a quasi experiment conducted in northeast thailand in 1995 1996 program participants were identified in six control villages 1 year prior to receiving loans surveys were then conducted of these control members treatment members in eight older program villages and nonmembers in both types of village this survey design allows for straightforward estimation of impact the results indicate that program loans are having little impact although naive estimates of impact that fail to account for self selection and endogenous program placement significantly overestimate impact

microfinance and poverty evidence using panel data from bangladesh micro finance supports mainly informal activities that often have low market demand it may be thus hypothesized that the aggregate poverty impact of micro finance in an economy with low economic growth is modest or nonexistent the observed borrower level poverty impact is then a result of income redistribution or short run income generation the author addresses these questions using household level panel data from bangladesh the findings confirm that micro finance benefits the poorest and has sustained impact in reducing poverty among program participants it also has positive spillover impact reducing poverty at the village level but the effect is more pronounced in reducing extreme rather than moderate poverty

the impact of microcredit on the poor in bangladesh revisiting the evidence abstractwe 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

instruments randomization and learning about development there is currently much debate about the effectiveness of foreign aid and about what kind of projects can engender economic development there is skepticism about the ability of econometric analysis to resolve these issues or of development agencies to learn from their own experience in response there is increasing use in development economics of randomized controlled trials rcts to accumulate credible knowledge of what works without overreliance on questionable theory or statistical methods when rcts are not possible the proponents of these methods advocate quasirandomization through instrumental variable iv techniques or natural experiments i argue that many of these applications are unlikely to recover quantities that are useful for policy or understanding two key issues are the misunderstanding of exogeneity and the handling of heterogeneity i illustrate from the literature on aid and growth actual randomization faces similar problems as does quasi randomization notwithstanding rhetoric to the contrary i argue that experiments have no special ability to produce more credible knowledge than other methods and that actual experiments are frequently subject to practical problems that undermine any claims to statistical or epistemic superiority i illustrate using prominent experiments in development and elsewhere as with iv methods rct based evaluation of projects without guidance from an understanding of underlying mechanisms is unlikely to lead to scientific progress in the understanding of economic development i welcome recent trends in development experimentation away from the evaluation of projects and toward the evaluation of theoretical mechanisms jel c21 f35 o19

microfinance its impact outreach and sustainability summary this symposium brings together recent empirical contributions with respect to a number of related and highly relevant issues on the economics of microfinance in particular the contributions provide answers to the following two main questions 1 does microfinance have an impact on the social and economic situation of the poor in developing nations and 2 are microfinance institutions sustainable in the long term and is there a trade off between sustainability and outreach

has the economy become more predictable changes in greenbook forecast accuracy several researchers have recently documented large reductions in economic volatility but a more important question may be whether the economy has become more predictable using forecasts from the federal reserve greenbooks i find that inflation and output have become more predictable though the results for output are somewhat mixed the reductions in unpredictability if any are significantly smaller than reductions in volatility associated with this the predictable component of fluctuations in output and inflation has virtually disappeared

verifying the solution from a nonlinear solver a case study we are pleased to confirm that any doubt our article mccullough and vinod 2003 hereafter mv03 may have cast on ron shachar and barry nalebuff 1999 hereafter sn99 must be removed we are especially pleased because we thought it quite unfair that other researchers were able to exempt themselves from such detailed scrutiny it appears that such researchers no longer will have the luxury of reneging on their agreement to honor the replication policy as this journal now requires authors of accepted empirical papers to provide all programs and data files for posting on the aer web site as a precondition of publication the primary aim of our article mv03 was to provide a four part methodology for verifying the solution from a nonlinear solver check the gradient examine the trace analyze the hessian and profile the likelihood we adduced copious evidence mv03 p 873 that solvers used by economists can produce inaccurate answers gave examples of different packages giving different answers to the same nonlinear problems mv03 p 874 and showed mv03 pp 873 74 at least in this journal that researchers make no effort to verify the solutions from the solvers that they use we believe this uncritical acceptance of solutions from nonlinear solvers to be a systemic problem in economic research that is why we wrote the article certainly econometrics texts do not show how to verify the solution from a nonlinear solver in passing we also showed how a problem can be too large for conventional pc methods and indicated the failure of replication policies in this journal and other journals we used the data and likelihood function from sn99 to illustrate the methodology in the course of this illustration we noted that the hessian was ill conditioned suggested that there might exist multiple optima and that inference based on the wald statistic was not appropriate we concluded that the solution we found was at best a tentative solution however as shown in shachar and nalebuff 2004 hereafter sn04 when the problem is rescaled the hessian is not ill conditioned they have correctly identified the difference between the condition number of the badly scaled version of the problem that we analyzed in mv03 and the well scaled problem that they have analyzed when the problem is correctly scaled the hessian is well conditioned the model is locally identifiable the problem can be solved on a pc a solution to the problem exists and sn present it in their table 1 though we were aware that rescaling could ameliorate ill conditioning mv03 p 882 we were unaware of the distinction between artificial ill conditioning and inherent ill conditioning so the method we suggested for analyzing the hessian contained an error of omission this error caused us to reach an incorrect conclusion concerning the existence of a solution to the problem we apologize to professors shachar and nalebuff and we thank them for their gracious understanding in this regard accordingly we have amended our prescription for analyzing the hessian see our nearby exchange with david m drukker and vince wiggins 2004 hereafter dw for complete details our

the economic lives of the poor in what turned out to be a rhetorical master move the 1990 world development report from the world bank defined the extremely poor people of the world as those who are currently living on no more than 1 per day per person measured at the 1985 purchasing power parity ppp exchange rate in 1993 the poverty line was updated to 1 08 per person per day at the 1993 ppp exchange rate which is the line we use in this paper poverty lines have always existed indeed 1 per day was chosen in part because of its proximity to the poverty lines used by many poor countries 1 however the 1 a day poverty line has come to dominate the conversations about poverty to a remarkable extent

high noon for microfinance impact evaluations re investigating the evidence from bangladesh recently microfinance has come under increasing criticism raising questions of the validity of iconic studies which have justified it such as pitt and khandker chemin applied propensity score matching to the pitt and khandker data finding different impacts but does not disaggregate by gender of borrower we first replicate chemin and extend his analysis in two ways we test the robustness of propensity score matching results to selection on unobservables using sensitivity analysis and we investigate propensity score matching estimates of impacts by gender of borrowers the mainly insignificant impacts of microfinance differ greatly by gender of borrower but are all vulnerable to selection on unobservables we are therefore not convinced that the relationships between microfinance and outcomes are causal with these data

income smoothing and consumption smoothing one way that risk averse households protect consumption levels is to borrow and use insurance mechanisms another way common in low income economies is to diversify economic activities and make conservative production and employment choices households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance typically both types of mechanisms are studied independently but much more can be learned by studying them together first we obtain a more complete picture of risks costs and insurance possibilities second it opens the way to considering biases in standard tests of credit and insurance

credit programmes for the poor and seasonality in rural bangladesh this article examines the effect of group based credit used to finance self employment by landless households in bangladesh on the seasonal pattern of household consumption and male and female labour supply this credit can help smooth seasonal consumption by financing new productive activities whose income flows and time demands do not seasonally covary with the income generated by existing agricultural activities the results based upon 1991 92 survey data strongly suggest that an important motivation for credit programme participation is the need to smooth the seasonal pattern of consumption and male labour supply it is only the extent of lean season consumption poverty that selects household into these programmes in addition the largest female and male effects of credit on household consumption are during the lean season

labor force dynamics of older men this paper describes and analyzes movements of older men among labor force states in the united states using quarterly observations derived from the retirement history survey rhs the results indicate substantial undercounts in the biannual data indicating that the prevalence of labor force movements at older ages has been underestimated previously the results show that labor force dynamics at older ages are important including duration and spell occurrence dependence and work experience effects these effects are robust to nonparametric controls for unobserved heterogeneity the estimates indicate that social security benefits have strong effects on the timing of labor force transitions at older ages but that changes in social security benefit levels over time have not contributed much to the trend toward earlier labor force exit excerpt

returns to capital in microenterprises evidence from a field experiment small and informal firms account for a large share of employment in developing countries the rapid expansion of microfinance services is based on the belief that these firms have productive investment opportunities and can enjoy high returns to capital if given the opportunity however measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks which are likely to be correlated with capital stock the authors use a randomized experiment to overcome this problem and to measure the return to capital for the average microenterprise in their sample regardless of whether they apply for credit they accomplish this by providing cash and equipment grants to small firms in sri lanka and measuring the increase in profits arising from this exogenous positive shock to capital stock after controlling for possible spillover effects the authors find the average real return to capital to be 5 7 percent a month substantially higher than the market interest rate they then examine the heterogeneity of treatment effects to explore whether missing credit markets or missing insurance markets are the most likely cause of the high returns returns are found to vary with entrepreneurial ability and with measures of other sources of cash within the household but not to vary with risk aversion or uncertainty

non linearities in returns to participation in grameen bank programs abstract this paper studies the benefits of participation in micro finance programs where benefits are measured in terms of the ability to smooth the effect of seasonal shocks that cause consumption fluctuations it is shown that although membership in these programs is an effective instrument in combating inter seasonal consumption differences there is a threshold level of length of participation beyond which benefits begin to diminish returns from membership are modelled using an euler equation approach fixed effects non linear least squares estimation of parameters using data from 24 villages of the grameen bank suggests that returns to participation as measured by the ability to smooth seasonal shocks begin to decline after approximately two years of membership this implies that membership alone no longer has a mitigating marginal effect on seasonal shocks to per capita consumption after four years of participation such patterns suggest that the ability to smooth consumption as a function of l

policies and impact an analysis of village level microfinance institutions this paper uses variation in policies and institutional characteristics to evaluate the impacts of village level microfinance institutions in rural thailand to identify impacts we use policies related to the successful unsuccessful provision of services as exogenous variation in effective financial intermediation we find that institutions particularly those with good policies can promote asset growth consumption smoothing and occupational mobility and can decrease moneylender reliance specifically cash lending institutions production credit groups and especially women s groups are successful in providing intermediation and its benefits to members while buffalo banks and rice banks are not the policies identified as important to intermediation and benefits the provision of savings services especially pledged savings accounts emergency services and training and advice surprisingly much publicized policies such as joint liability default consequences or repayment frequency had no measured impacts jel 012 016

causal parameters and policy analysis in economics a twentieth century retrospective the major contributions of twentieth century econometrics to knowledge were the definition of causal parameters within well defined economic models in which agents are constrained by resources and markets and causes are interrelated the analysis of what is required to recover causal parameters from data the identification problem and clarification of the role of causal parameters in policy evaluation and in forecasting the effects of policies never previously experienced this paper summarizes the development of these ideas by the cowles commission the response to their work by structural econometricians and var econometricians and the response to structural and var econometrics by calibrators advocates of natural and social experiments and by nonparametric econometricians and statisticians this paper considers the definition and identification of causal parameters in economics and their role in econometric policy analysis it assesses different research programs designed to recover causal parameters from data at the beginning of this century economic theory was mainly intuitive and empirical support for it was largely anecdotal at the end of the century economics has a rich array of formal models and a high quality database empirical regularities motivate theory in many areas of economics and data are routinely used to test theory many economic theories have been developed as measurement frameworks to suggest what data should be collected and how they should be interpreted econometric theory was developed to analyze and interpret economic data most econometric theory adapts methods originally developed in statistics the major exception to this rule is the econometric analysis of the identification problem and the companion analyses of structural equations causality and economic policy evaluation although an economist did not invent the phrase correlation does not imply causation 1 economists clari

the impact of group based credit programs on poor households in bangladesh does the gender of participants matter this paper estimates the impact of participation by gender in the grameen bank and two other group based micro credit programs in bangladesh on labor supply schooling household expenditure and assets the empirical method uses a quasi experimental survey design to correct for the bias from unobserved individual and village level heterogeneity we find that program credit has a larger effect on the behavior of poor households in bangladesh when women are the program participants for example annual household consumption expenditure increases 18 taka for every 100 additional taka borrowed by women from these credit programs compared with 11 taka for men

empowering women with micro finance evidence from bangladesh abstract this article examines the effects of men s and women s participation in micro credit programs on various indicators of women s empowerment using data from a special survey carried out in rural bangladesh these credit programs are well suited to studying how gender specific resources alter intrahousehold allocations because they induce differential participation by gender through the requirement that only one adult member per household can participate in any micro credit program empowerment is formalized as an unobserved latent variable reflecting common components of qualitative responses to a large set of questions pertaining to women s autonomy and decision making power the empirical methods are attentive to various sources of endogeneity and the results are consistent with the view that women s participation in micro credit programs helps to increase women s empowerment the effects of male credit on women s empowerment were generally negative

measuring microfinance assessing the conflict between practitioners and researchers with evidence from nepal summary what accounts for the discrepancy between microfinance impact claims of development practitioners and the far smaller impacts found in experimental studies we demonstrate in a simple theoretical framework why before and after observations of practitioners overstate microfinance impacts and why estimations in some recent randomized trials understate the average treatment effect on the treated att our empirical study uses a unique data set from eastern nepal to study the impact of microfinance in villages where microfinance did not previously exist we find that approximately three fourths of the apparent impact of microfinance observed by practitioners is an illusion driven by correlated unobservable factors

experimental evidence on returns to capital and access to finance in mexico a strong theoretical argument for focusing on access to finance is that financial market imperfections can result in large inefficiencies as firms with productive investment opportunities underinvest lack of access to finance is a frequent complaint of microenterprises which account for a large share of employment in developing countries however assessing the extent to which a lack of capital affects their business profits is complicated by the fact that business investment is likely to be correlated with a host of unmeasured characteristics of the owner and firm such as entrepreneurial ability and demand shocks in a randomized experiment that gave cash and in kind grants to small retail firms providing an exogenous shock to capital the shock generated large increases in profits with the effects concentrated among firms that were more financially constrained the estimated return to capital was at least 20 33 percent a month three to five times higher than market interest rates

the impact of microcredit borrowing on household consumption in bangladesh the rapid expansion of microcredit in recent years renders knowledge of its impact on poverty critical unfortunately empirical investigations have been limited by endogeneity issues and randomiz

an exogeneity test for a simultaneous equation tobit model with an application to labor supply a test of weak exogeneity in the simultaneous equation tobit model is proposed and illustrated using a female labour supply model estimated using cross section data the test statistic can be simply output from any standard tobit maximum likelihood package and is asymptotically efficient the procedure provides consistent estimators for the simultaneous tobit model whose asymptotic covariance matrix is a simple extension of the usual tobit formula we also provide the lagrange multiplier test of weak exogeneity this abstract was borrowed from another version of this item

the benefits and costs of microfinance evidence from bangladesh abstract using the latest developments from the evaluation literature namely the technique of matching this paper shows a positive but lower than previously thought effect of microfinance on expenditure per capita supply of labour and level of school enrolment for boys and girls for instance participants spend 3 per cent more on average than non participants in control villages this paper also takes into account repayment delays to calculate the cost of credit provision it shows how a better investigation at the individual level of the benefits brought and the cost borne could help microfinance institutions to better select their customers jel classification c14 d10 g21 i38 o12 o16