Reference no: EM133504483

Case: Review the development program described below, which is based on a real intervention in Sri Lanka.

In this part, you will make an evaluation of that program and offer a critical assessment.

Program description: 

The researchers aim to measure the impact of the additional capital on business profits by providing randomly selected firms with a positive shock to their capital stock.  Firms were recruited for the study and told before the initial survey that they would be surveyed quarterly for five periods. The firms are equally male and female owned and are equally split between retail and light manufacturing. All are microenterprises (defined by the initial capital investment required, less than $1000 USD). 

After the first wave of the survey, there would be a random prize drawing and the random drawing was framed as compensation for participating in the survey. The prize consisted of cash grants of either 10,000 Sri Lankan Rupees or 20,000 Sri Lankan Rupees. Those firms that did not win the prize received 0 Sri Lankan Rupees. A total of 124 firms out of 350 firms in total received the treatment with 2/3 receiving the 10,000 cash grant and 1/3 receiving the 20,000 one.

To better understand the size of the treatment, 10,000 Sri Lankan Rupees is equivalent to about three months of median profits reported by the firms at baseline. Alternatively, the median initial level of invested capital was about 18,000 Sri Lankan Rupees.

The researcher is interested estimating the following equation: 

profits_it = a + b*grant_amount_it + e_it 

where i indexes the firm and t indexes the period and e is an error term.

Critical Assessment

1. Why is the objective of the program important?
2. Are you concerned about omitted variable bias? Why or why not?
3. Describe the results of the study presented in the table below, separated by female and male owners. What is the effect of the cash grant for male owners? What is the effect for female owners?
4. Are these effects economically (you need to provide an argument about whether an economist would think this magnitude is large enough) and statistically important (absolute value of t-stat > 2)?
5. Summarize a key finding for policy makers interested in women's empowerment.
6. If one of the program's objectives were women's empowerment, how would you measure this outcome? What would you consider to be an economically significant effect of the program for this outcome? How could you change the intervention to improve its impact on women's empowerment?