Last updated on January 7, 2011
Jonathan Morduch, who knows a thing or two about microfinance, has some good news about microfinance in a recent post. Because the randomized controlled trials (RCTs) aimed at evaluating microfinance are designed to test a narrower set of hypotheses than medical RCTs, microfinance research is not as bad as medical research:
“The RCTs do better because they are designed from the ground up to test a particular (and narrow) set of hypotheses. That greatly curtails the opportunity for “fishing expeditions” and the chance that one of your 57 hypotheses happens to be statistically significant by a fluke. The questions tend to be far more focused in the microfinance context. Does access to microfinance increase business profit? Business investment? Household consumption? Those microfinance hypotheses usually stem from a clear theoretical model and should show up in clear patterns. That’s far different from many medical studies, in which a much greater range of plausible hypotheses exist (along with a greater range of incorrect hypotheses). The situation persists because the specific pathways that link diet/activity/lifestyle to health conditions remain poorly understood. So lots of stuff gets tested in the medical literature, and “effects” may emerge that pass standard levels of statistical significance but which are caused by odd outliers or other features common to small data sets – and which turn out to be wrong.”
That still does not make microfinance a silver bullet, though.
(H/T: David Roodman via Twitter.)