What explains gender differences in India? What can be done to promote shared prosperity?

Ejaz Ghani, William Kerr, Stephen D O'Connell, 22 February 2013

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Despite rapid economic growth during the last two decades, gender disparities remain deep and persistent in India (e.g. Duflo 2012, World Bank 2012). The UN Gender Inequality Index ranks India below several sub-Saharan African countries, and the World Economic Forum ranks India 113 out of 135 countries in its Global Gender Gap Report (Hausmann, Tyson and Zahidi 2011).

In a recent paper (Ghani et al. 2012), we focus on the gender disparities between men and women regarding business conditions in India. We examine detailed micro-data on the unorganised manufacturing and services sectors, and develop relative rates of female entrepreneurship and business ownership at the district-industry-year level (see Figure 1).

Figure 1a. Female entrepreneurship in unorganised manufacturing

Figure 1b. Female entrepreneurship in unorganised services

 

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 unorganised manufacturing sector would have decreased by nearly ten 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.

Local industrial conditions and gender imbalance

Our core focus is on the extent to which local industrial conditions (e.g. Glaeser and Kerr 2009) influence the gender balance of new enterprises. 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 labour-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 – with simpler frameworks – 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 one of India’s ten biggest cities, and the stringency of labour laws.

Table 1 summarises our primary results. The outcome variable is the female-run young establishments share in the district-industry. These estimations control for industry-year fixed effects, but we delay modeling district effects to identify broader conditions.

Table 1. Unconditional estimations of female entrant share manufacturing and service sectors

Source: Ghani et al. 2012b.

Results

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 emphasising working-age population, better quality infrastructure, and more stringent labour 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.

Infrastructure is key

The infrastructure correlation 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 the within-district infrastructure quality is prominent, access to major cities is not found to influence the gender balance. Additional work finds 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 who wish to access markets.

Stringent labour laws seem to shift gender balance

The positive association for stringent labour regulations is interesting. Several studies find that strict labour 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 labour 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.

These results support the conclusion that female entrepreneurship follows from incumbent female-owned businesses in a district-industry that encourages 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 and omitted factors.

Conclusions

We find evidence of agglomeration economies in both manufacturing and services. where higher female ownership among incumbent businesses within a district-industry predicts that 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 controlling for the focal district-industry’s conditions. The traits of local business owners in incumbent industrial structures thus influence the types of entrepreneurs supported and can help explain gender differences in Indian entrepreneurship.

India’s economic growth and shared prosperity depends upon successfully utilising its workforce, both male and female. Despite its recent economic advances, India’s gender balance in labour force participation and entrepreneurship remains among the lowest in the world. Improving this balance is an important step for India’s development and its achievement of shared prosperity and gender equality. Although achieving economic equality and shared prosperity sometimes requires tough choices (e.g. progressive taxation that may discourage effort), the opposite is true here: it should be obvious that this greater gender equality in business is an easy policy choice.

Disclaimer: The views expressed here are those of the authors and do not necessarily represent those of the institutions with which they are affiliated.

References

Duflo, Esther (2012), “Women's empowerment and economic development”, VoxEU.org, 2012

Glaeser, Edward and William Kerr (2009), “Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?”, Journal of Economics and Management Strategy 18:3, 623-663.

Ghani, Ejaz (2010), “Services-led growth in India: A new hope for development late-comers?”, VoxEU.org.

Ghani, Ejaz & Kerr, William R & O'Connell, Stephen D (2012), "What explains big gender disparities in India: Local industrial structures and female entrepreneurship", Policy Research Working Paper Series 6228, World Bank.

Hausmann, Ricardo, Tyson, Laura and Zahidi, Saadia (2011), Global Gender Gap Report, World Economic Forum.

Klapper, Leora and Parker, Simon (2011), “Gender and Business Environment for New Firm Creation”, World Bank Research Observer.

Marshall, Alfred (1920), Principles of Economics, London, UK, MacMillan and Co..

Mukim, Megha (2011), “Industry and the Urge to Cluster: A Study of the Informal Sector in India”, SERC Paper 0072.

World Bank (2012), Gender Equality and Development.

Topics: Development, Gender
Tags: Business, entrepreneurship, gender, India

Ejaz Ghani
Lead Economist in Economic Policy and Debt, PREM Network, World Bank
Assistant Professor, Harvard Business School
Stephen D O'Connell
Consultant, Poverty Reduction and Economic Management Unit, World Bank