The UN Global Gender Gap data shows that women's economic participation and opportunity is worse in India than in 95% of all other countries studied. This column attempts to uncover what drives the gender balances of new enterprise in India and suggests measures for promoting women’s entrepreneurship and economic participation.
The UN Gender Inequality Index has ranked India below several sub-Saharan African countries. Gender disparities are even more pronounced in economic participation and women’s business conditions in India. Using data from the 2011 Global Gender Gap report, Figure 1 shows that while India scores around the average of the gender gap index overall (horizontal axis), its score for women’s economic participation and opportunity is worse than 95% of all countries in the sample (vertical axis). Despite India being the second fastest growing economy in the world, gender disparities have remained deep and persistent in India.
What explains these huge gender disparities in women’s economic participation in India? Is it poor infrastructure, limited education, and the gender composition of the labor force and industries? Or is it deficiencies in social and business networks and a low share of existing or incumbent female entrepreneurs? In a recent paper (Ghani et al. 2011b), we examine gender disparities in women’s business conditions in India. We use detailed micro data on the unorganised (informal) manufacturing and services sectors to explore what drives female entrepreneurship across districts and industries.
Which industries attract female entrepreneurs?
The good news is that the overall average female business ownership share in India has improved over time from 26% in 2000 to 37% in 2005. There has been a massive growth in women’s employment in informal sectors. Indeed, had the rate of female businesses not increased, the share of total employment in the unorganized manufacturing sector would have decreased by nearly 10 percentage points. There is, however, a wide variation across states and districts in the role of women in local entrepreneurship.
Within the manufacturing sector, female shares are highest and typically exceed 50% in industries related to paper and tobacco products. At the opposite end, female shares of 2% or less are common in industries related to computers, motor vehicles, fabricated metal products, and machinery and equipment. In services, female ownership rates in major cities tend to be higher than overall state averages and exceed 30% in industries related to sanitation and education. Industries related to research and development, and transportation have the lowest rates at 1% or less.
What drives the gender balance of new enterprise?
We use detailed micro-data on the unorganized manufacturing and services sectors, and develop relative rates of female entrepreneurship and business ownership at the district-industry-year level. We develop metrics that unite the incumbent industrial structures of cities with the extent to which industries interact through agglomeration mechanisms (Marshall 1920). These metrics condense complex local industrial structures into simple indicators of the suitability of a given area for an industry in terms of local labor force compatibility or input-output connections. We develop these metrics separately using female- and male-owned incumbent businesses to identify how gender-specific agglomeration benefits are for new entrants.
We also explore the role of broader district-level traits (population, education), indicators of women’s welfare in the area (female literacy rate, total fertility rate), indicators of local physical infrastructure, travel time to biggest cities, and the stringency of labor laws.
We find that a district-industry with more incumbent female employment has a greater female entry share. Strong input-output conditions in the district for the industry studied are linked to higher female entry ratios. Among district-level traits, a higher female-to-male sex ratio, an age profile emphasizing working age population, better quality infrastructure, and more stringent labor regulations appear important. The relative entry rate declines with high population density. Education and female literacy rates are not associated with gender differences in manufacturing.
The relationship between infrastructure and the female entry share is the most policy relevant. Inadequate infrastructure affects women more than men, perhaps because women often bear a larger share of the time and responsibility for household activities. It is notable that while infrastructure access within a district matters, access to major cities is not found to influence the gender balance. We also find that transport infrastructure and paved roads within villages are especially important. Travel in India can be limited and unpredictable, and women face greater constraints in geographic mobility imposed by safety concerns and/ or social norms. Better transport infrastructure may alleviate a major constraint for female entrepreneurs accessing markets. The agglomeration metrics suggest that female connections in labor markets and input-output markets contribute to a higher female entry share. A one-standard deviation increase in either of these incumbent conditions correlates with a 2%-3% increase in the share of new entrants that are female. This compares to a base female to male entry ratio of 21%.
The positive association for stringent labor regulations is interesting. Several studies find that strict labor regulations suppress Indian entrepreneurship generally, especially in the formal sector. These regulations may affect the gender balance of entrepreneurs by shifting activity into industries that female entrepreneurs tend to be more involved in or influencing occupational decisions within the family.
The agglomeration metrics suggest that female connections in labor markets and input-output markets contribute to a higher entry share. A one-standard deviation increase in either of these incumbent conditions correlates with a 2%-3% increase in the share of new entrants that are female. This compares to a base female entry ratio of 21%.
Most of the basic district-level linkages observed for manufacturing continue for services. Somewhat surprisingly, a higher female entry ratio is not associated with a greater female sex ratio in the district, but female literacy rates and general education levels are more predictive. This link may be due to services being more skill intensive than manufacturing in India (Ghani, 2010). Stronger female-owned incumbent businesses again predict a greater female entrepreneurship in service industries.
Our results support the conclusion that female entrepreneurship in India follows from incumbent female-owned businesses in a district-industry that encourage subsequent entry. Marshallian channels are important, but they mostly appear to be operating through the district-industry agglomeration for female business owners itself. While our approach does not rule out every potential bias, it does circumvent the most worrisome endogeneity or omitted factors.
Correcting gender imbalances in entrepreneurship
A central driver of economic growth over the past century is the increased role of women. This growth in the role of women comes in many forms: better education and health that increase female labour force participation, reduced discrimination and wage differentials that encourage greater effort, and improved advancement practices that promote talented women into leadership and managerial roles. Simply put, empowering half of the potential workforce has significant economic benefits beyond promoting gender equality (Duflo 2005, 2011; World Bank 2012).
Infrastructure and education predict higher female entry shares in India. We find evidence of agglomeration economies in both manufacturing and services, where higher female ownership among incumbent businesses within a district-industry predicts a greater share of subsequent entrepreneurs will be female. Moreover, higher female ownership of local businesses in related industries (e.g., similar labour needs, input-output markets) predict greater relative female entry rates even after taking into account the particular district-industry conditions.
Gender networks thus clearly matter for entry into entrepreneurship. However, we need to develop a better understanding of how gender networks influence aggregate efficiency. An important message of our research is that these linkages and spillovers across firms can depend a lot on common traits of business owners. Likewise, interactions between the informal and formal sectors may not be as strong as interactions within each sector. Further research needs to identify how these economic forces vary by the composition of local industry. This will be especially helpful for evaluating the performance of industry concentrations in developing economies and guiding appropriate policy actions.
Recent research has emphasised the role of women in development. India’s economic growth and development depends upon successfully utilising its workforce, both male and female. Despite its recent economic advances, India’s gender balance for entrepreneurship remains among the lowest in the world. Improving this balance is an important step for India’s development and its achievement of greater economic growth and gender equality. While achieving economic equality sometimes requires tough choices (e.g., progressive taxation that may discourage effort), the opposite is true here.
The views expressed here are those of the authors and not necessarily The World Bank or any other institution they may be associated with. This column appeared in a World Bank blog.
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