Aggregate Implications of Barriers to Female Entrepreneurship
We develop a framework for quantifying barriers to labor force participation (LFP) and entrepreneurship faced by women in developing countries, and apply it to the Indian economy. We find that women face substantial barriers to LFP. The costs for expanding businesses through the hiring of workers are also substantially higher for women entrepreneurs. However, there is one area in which female entrepreneurs have an advantage: the hiring of female workers. We show that this is not driven by the sectoral composition of female employment. Consistent with this pattern, we find even without promoting female LFP, policies that boost female entrepreneurship can significantly increase female LFP. Counterfactual simulations indicate that removing all excess barriers faced by women entrepreneurs would substantially increase the fraction of female-owned firms, female LFP, earnings, and generate substantial gains in aggregate productivity and welfare. These gains are due to higher LFP, higher real wages and profits, and reallocation: low productivity male-owned firms previously sheltered from female competition are replaced by higher productivity female-owned firms previously excluded from the economy.
This is a substantially revised version of a paper circulated in February 2021. We would like to thank Oriana Bandiera, Rafael Dix-Carneiro, Rachel Ngai, Rohini Pande, Michael Peters, Imran Rasul, Gabriel Ulyssea and seminar participants at the University of Virginia, MIT, Harvard University, Ohio University, and the IGC-Stanford Conference on Firms, Trade and Development, for many helpful comments. Chiplunkar would like to acknowledge research support from the Insititute for Business in Society, Darden School of Business. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.