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Discrimination and Access to Capital: Experimental Evidence from Ethiopia
Published Web Location
https://doi.org/10.26085/C3459NAbstract
Access to capital is critical to business growth and productivity, yet female business owners are less likely to receive formal financing. Using a large-scale field experiment in Ethiopia, we show that gender discrimination by financial providers is unlikely to be a key contributor to this gap, and that there is no meaningful trade-off between gender equity and allocating capital to high-performing businesses. We study whether finan- cial providers discriminated against female owners in a high-stakes capital allocation decision affecting real businesses in a national business plan competition. In a sample of 3,696 evaluations, we find no evidence that randomly assigned business-owner gender affected capital allocation decisions, neither for the competition prizes nor for consid- eration for a loan. Our confidence intervals are tight enough to exclude any meaningful gender discrimination in these decisions. Consistent with the lack of discrimination, an incentivized belief elicitation revealed that randomly assigned business-owner gender did not affect financial providers’ beliefs about future business performance. Using a machine learning algorithm to predict actual business performance 18 months after the competition, we find that considering gender indeed does not improve targeting of capi- tal towards high-performing businesses. The results provide support for the theoretical prediction that discrimination will not persist when it is not profit maximizing.
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