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Impact Assessment Meets the Market

David McKenzie's picture

Rigorous impact evaluations are one of the most important tools we have for understanding “what works” in development. Impact evaluations compare the outcomes of a program or policy against an explicit counterfactual of what would have happened without the program or policy. This kind of evaluation has been gaining more recognition recently, particularly since Esther Duflo, a professor at MIT and a pioneer in this field, received the prestigious John Bates Clark Award. But her work and that of others in the field has focused primarily on health and education. That is starting to change, with finance and private sector development finally getting their due.

In a recent overview paper, I examine why impact evaluations have been slow to occur in the areas of finance and private sector development, and provide examples of successful cases where it has occurred. I suggest key barriers to their use, including (1) a lack of experience with these methods by operational staff working in these fields; and (2) a perception that many of the policies being implemented are not amenable to evaluation.

This perception is incorrect. Using examples from recent evaluations in microfinance, regulatory reform, microenterprise growth, and insurance I argue that evaluations often are feasible, and can deliver valuable lessons for policy. A number of colleagues and I have put together friendly summaries of some of these examples in our new Finance & PSD Impact Note Series—in 2 pages we summarize a particular impact evaluation and draw out some of its policy lessons.

In assessing progress to date, one glaring limitation has stood out. As I document in the overview paper,  impact evaluations have so far either been after-the-fact evaluations of policy reforms or randomized experiments set up by researchers in association with NGOs or private organizations. This approach has limited the sorts of questions that could be studied and the extent to which results could quickly influence policy. This is where I see a big opportunity for high-impact research going forward—working interactively with operational staff and governments on large-scale projects to reform regulations, spur SME development, and foster innovation. The new DIME-FPD initiative aims to catalyze precisely this, and a number of us in the World Bank’s research group are beginning work that interactively builds rigorous impact evaluation, including the use of randomized experiments, into the roll-out of new World Bank private sector projects. We look forward to sharing the results of this exercise as they begin to emerge.

Further reading:

McKenzie, David (2010) “Impact Assessments in Finance and Private Sector Development: What Have We Learned and What Should We Learn?”, World Bank Research Observer, forthcoming. (ungated version available here).

We now have 11 notes in our Finance & PSD Impact Note Series.

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