Discrimination and Access to Capital: Experimental Evidence from Ethiopia
Presented by:
Shanthi Manian
School of Economic Sciences
Washington State University
Thursday, November 9, 2023
3:45 pm-5:00 pm
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Access to capital is critical to business growth and productivity, yet female-owned businesses have less access to capital globally. Gender discrimination by financial providers is widely believed to be a key contributor to these gaps. Using a large-scale field experiment in Ethiopia in which applicants’ gender was randomly assigned, we study whether financial providers discriminated against female-owned businesses in a high-stakes capital allocation decision for real businesses participating in a national business plan competition. In a sample of 3,696 evaluations, we find no evidence that business owner gender affected capital allocation decisions, neither for the competition prizes nor for consideration for a loan at the financial providers’ own institution. Our confidence intervals are tight enough to exclude any meaningful gender differences in these decisions. An incentivized belief elicitation revealed that financial providers’ lack of discrimination in capital allocation decisions was consistent with their beliefs: the randomly assigned business owner gender did not predict their beliefs about future business performance. Finally, we study whether the lack of discrimination came at a cost of allocating capital to lower performing businesses in the competition. Using a follow up survey, we study whether gender matters for predicting actual business performance 18 months after the competition. Similar to the financial providers, a machine learning algorithm does not select gender in a set of optimal predictors of business profits. Thus, we find no meaningful trade-off between gender equity and allocating capital to the highest performing businesses.
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