The Impact of Microfinance, Health, and Education on Poverty: Evidence from Randomized Controlled Trials
The Poverty Trap, Nutrition, and Health
Dasgupta and Ray (1986) “Inequality as a Determinant of Malnutrition and Unemployment.” Economic Journal, 96,1011–34.
This important article explores the concept of the poverty trap, a self-reinforcing mechanism that perpetuates poverty. Poverty traps have been attributed to various factors, including:
- Lack of food/poor nutrition
- Lack of education
- Poor health and lack of access to healthcare
- Large families and limited family planning/contraception
- Limited access to insurance
- Inability to save or access credit
While famines are less prevalent today, malnutrition and hunger remain significant issues, affecting approximately 1 billion people globally, according to the FAO. The nutrition-based poverty trap posits that low income prevents individuals from affording adequate nutrition, impacting their current and future income, thus creating a vicious cycle of poverty.
Jensen & Miller (2008) “Giffen Behaviour and Subsistence Consumption,” American Economic Review, 98(4), 1553-1577.
This study examines Giffen behavior, where demand for a good increases as its price rises, in the context of subsidized rice consumption. The authors found that a 100% subsidy on rice led to a 23.5% decrease in consumption, indicating that subsidized rice might be a Giffen good. This suggests that food subsidies, while intended to help the poor, might have unintended consequences, such as leading to the consumption of less nutritious alternatives.
Kremer & Miguel (2007) “The Illusion of Sustainability,” Quarterly Journal of Economics, 122(3), 1007-1065.
This research highlights the challenges of sustaining health interventions, focusing on deworming programs. The study found that while deworming led to increased school participation and long-term income gains, the program collapsed when parents were asked to cost-share. This highlights the importance of considering sustainability and potential unintended consequences when designing and implementing health interventions.
Preventative Healthcare
Banerjee, Duflo, Jameel, Glennerster & Kothari (2010) “Improving Immunisation Coverage in Rural India: Clustered Randomised Controlled Evaluation of Immunisation Campaigns with and without Incentives” British Medical Journal, 340
This study evaluates the effectiveness of immunization campaigns with and without incentives in rural India. The authors found that offering small incentives to parents significantly increased immunization rates, highlighting the potential of behavioral economics-informed interventions in improving public health outcomes.
Education
Banerjee, Cole, Duflo & Linden (2007) “Remedying Education: Evidence from two randomized experiments in India,” Quarterly Journal of Economics, August, 1235-1264.
This research evaluates the Balsakhi program, which provided remedial education to lagging students in India. The study found that the program significantly improved test scores for students who received the intervention, demonstrating the potential of targeted interventions in addressing learning gaps.
Banerjee & Banerji “Read India – Every Child in School and Learning Well Helping Primary School Students in India Acquire Basic Reading and Math Skills”
This study evaluates the”Read Indi” program, which focused on improving reading and math skills among primary school students in India. The program, which involved grouping children by ability level and providing teacher training and support, led to significant improvements in learning outcomes, particularly for students who were lagging behind.
J-Pal (2011) What helps children to learn? Evaluation of Pratham’s Read India program in Bihar & Uttarakhand
This evaluation of the”Read Indi” program found significant improvements in reading and math skills among students who participated in the program. The study highlights the importance of providing targeted interventions, such as remedial education and teacher training, to improve learning outcomes, particularly for disadvantaged students.
Duflo, Dupas, & Kremer (2011) “Peer Effects, Teacher Incentives, and the impact of Tracking: Evidence from a Randomized Evaluation in Kenya,” American Economic Review, 101(5), 1739–1774
This study examines the impact of tracking (grouping students by ability) and teacher incentives on learning outcomes in Kenya. The authors found that tracking led to improved test scores for all students, but the benefits were greater for high-achieving students. The study also highlights the importance of teacher incentives in improving educational outcomes.
Fertility and Families
Ashraf, Field & Jean Lee (2014) “Household Bargaining and Excess Fertility: An Experimental Study in Zambia,” American Economic Review, 104(7), 2210-37.
This research investigates the role of household bargaining in fertility decisions. The study found that women were more likely to use contraceptives when their husbands were unaware of their access, suggesting that intra-household dynamics significantly influence family planning decisions.
Duflo, Dupas & Kremer (2014) “Education, HIV, and Early Fertility: Experimental Evidence from Kenya”
This study examines the impact of school uniforms and HIV education on school completion and early fertility in Kenya. The authors found that providing free school uniforms led to increased school completion and reduced teenage pregnancy rates, highlighting the potential of addressing economic barriers to education in improving human development outcomes.
La Ferrara, Chong & Duryea (2008) “Soap Operas and Fertility: Evidence from Brazil”, BREAD Working Paper 172.
This research explores the impact of soap operas on fertility rates in Brazil. The authors found that exposure to soap operas, which often portrayed smaller families, was associated with lower fertility rates, suggesting that social factors and media can influence reproductive behavior.
Munshi & Myaux (2006) “Social Norms and the Fertility Transition” Journal of Development Economics, 80, 1-38
This study examines the role of social norms in the fertility transition in Bangladesh. The authors found that the adoption of contraceptives was slow and varied across communities, suggesting that social norms and community-level factors play a crucial role in shaping reproductive behavior.
Risk and Insurance
J-Pal, CEGA & Agricultural Technology Policy Initiative (2016) “Make it Rain,” Policy Bulletin, February
This research reviews randomized evaluations of weather index insurance for smallholder farmers. The study found that while insurance can help farmers cope with weather shocks, take-up rates are often low. The authors suggest that addressing behavioral biases and improving product design could enhance the effectiveness of weather index insurance.
Townsend (1995)”Financial Systems in Northern Thai Villages” Quarterly Journal of Economics, November, 1011-1046.
This study examines informal financial systems in rural Thailand. The author found that village-level institutions and social networks play a crucial role in providing financial services, such as savings, credit, and insurance, to rural households.
Savings and Borrowings
Ashraf, Karlan & Yin (2006) “Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines”, Quarterly Journal of Economics
This research evaluates the impact of a commitment savings product (SEED account) on savings behavior in the Philippines. The study found that the SEED account, which restricted access to savings, led to a significant increase in savings balances, particularly among individuals with present-biased preferences.
Banerjee, Duflo, Glennerster, & Kinnan (2010) “The Miracle of Microfinance? Evidence from a Randomized Evaluation.” Cambridge, Mass.: J-PAL and MIT, June.
This influential study evaluates the impact of microcredit on household income, business outcomes, and consumption in India. The authors found that while microcredit did not lead to transformative changes in income or poverty reduction, it did increase investment in existing businesses and the purchase of durable goods.
Collins et al (2009) Portfolios of the Poor: How the World’s Poor Live on $2 a Day, p.68
This book provides insights into the financial lives of the poor, highlighting the importance of informal financial mechanisms, such as reciprocal lending and borrowing, in coping with poverty and managing risk.
Crépon, Devoto, Duflo, and Parienté (2011) “Impact of Microcredit in Rural Areas of Morocco: Evidence from a Randomized Evaluation.” MIT Working Paper. Cambridge, Mass.: MIT, March.
This study evaluates the impact of microcredit on business outcomes and consumption in rural Morocco. The authors found that access to microcredit led to increased investment in existing businesses and changes in consumption patterns, but it did not lead to significant increases in overall business creation or income.
Karlan, Dean, and Jonathan Zinman (2011) “Microcredit in Theory and Practice: Using Randomized Credit Scoring for Impact Evaluation.” Science, 332(6035): 1278–84.
First Macro a for-profit micro-finance lender to small businesses in Manilla. Explicit social agenda to help the poor. Loans based on credit worthiness – so loans don’t reach the poorest. Treatment Group – those selected for loans, Control Group – those rejected for loans Range of results that challenged the beneficial claims for microcredit. Men did better than women – three times the increase in business profits. The better-off borrowers proved much more adept at putting their loans to work: for the (relatively) wealthier half of applicants, getting a loan led to a 25 percent jump in business profits, whereas for those less well-off, no statistical impact on profits (similar to the Spandana & Moroccan study). The businesses with increased profits (male & better-off), did so not through a process of unfettered growth, but through pruning. Increases in profits were driven mostly by shrinking firms. They had fewer businesses overall, and the businesses they did have employed fewer paid workers. Costs fell and profits rose. The evidence from randomised and nonrandomized methods already find modest but neither revolutionary nor deleterious impacts from credit. take-up rates for credit products are often surprisingly low, and not all economic activities that poor people engage in yield high returns. Not everyone is an entrepreneur, Some people borrow to increase consumption, not for business or human development goals. Microcredit is not generating significantly higher incomes on average by increasing the number of businesses or assisting existing businesses. And yet the industry has focused almost exclusively on the rhetoric of entrepreneurship and has overlooked the many important benefits to households that are using loans to accelerate consumption, absorb shocks or make household investments, such as investments in durable goods, home improvements. Doesn’t have to help people get out of poverty by increasing the number & size of businesses for it to be useful. Nor does it have to improve human development outcomes. It may help: Reduces stress by smoothing consumption, Helps with emergencies and shocks, Helps people achieve lifetime goals (such as paying for a wedding, home improvements) – something the poor don’t get to do, so even a benefit if it potentially makes you poorer, Pay down a money lender loan. Research is still being undertaken to more fully understand the impact of microcredit on the poorThere are other more important ways to assist people out of poverty, such as insurance, healthcare & education, rather than some emphasis on turning the poor into entrepreneurs