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Impact assessment for market-building interventions in capital markets: Review, critiques and improvements

Working paper

Written by Judith Tyson, Sherillyn Raga

Working paper

To develop African capital markets and increase financial inclusion, specific interventions have been introduced to better design policies and programmes for capital market development. One important question is how to assess the impacts of these interventions in capital markets, since most of them are implemented at small scale and it is usually very difficult to find an appropriate control group in order to perform a rigorous impact assessment. This paper reviews existing techniques and methods used to evaluate the impact of interventions in general and discusses their application in the financial sector. Most interventions in financial development conducted by development finance institutions were evaluated through the Development Assistance Committee’s five criteria: relevance, effectiveness, efficiency, impact, and sustainability. Recent developments in micro-econometrics allow the use of a variety of impact evaluation methods such as randomised control trials, instrumental variables, propensity score matching, regression discontinuity and double difference. These techniques, however, are more suitable for interventions at micro unit level and for evaluating the direct impact of the interventions. To account for spillover and macro-economic effects of interventions implemented at macro level, general equilibrium, synthetic controls, and vector autoregression.