What Explains Gender Disparities in India? What Can Be Done?

Despite rapid economic growth, the explosion of microcredit programs and self-help groups, and laudable efforts to increase women’s political participation, gender disparities have remained deep and persistent in India. 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 huge gender disparities in women’s economic participation in India? In a recent paper, we examine this question by looking at female entrepreneurship and its local determinants in unorganized manufacturing and service sectors.

The good news is that the overall India average female business-ownership share (in manufacturing) has increased over time from 26% in 2000 to 37% in 2005. However, there is wide variation across states and industries in the prevalence of women as entrepreneurs. Among the major states of India, those with the highest share of new proprietary businesses in the unorganized manufacturing sector owned by women in 1994 are Karnataka, Tamil Nadu, Andhra Pradesh, and Kerala. Those with the lowest share of female entrepreneurs are Uttar Pradesh, Haryana, Maharashtra, Madhya Pradesh, and Rajasthan. Similar patterns hold across states when comparing overall business ownership rates by gender. All but one state (Sikkim) saw an increase in the share of new businesses owned by women over the period of 1994 to 2005.

The same metrics by 2-digit industry show a concentration of female entrepreneurship rates (and business ownership generally) among traditional and low-technology industries such as tobacco, paper, textiles/apparel/leather, wood products. Around 19 out of 23 broad industries saw an increase in the share of new businesses created by women between 1994 and 2005, with the largest increases (in terms of female entrepreneurship rate) occurred among apparel, paper products, textiles, and tobacco manufacturing.

Not surprisingly, the same industries in which female entrepreneurship is concentrated relative to male entrepreneurship also comprise the industries in which most women-owned businesses are found. In 1994, more than 90 percent of new female-owned businesses were found in six of 22 2-digit industries. These industries include Textiles, Tobacco, Wood Products, Food Products, Furniture and Chemical Products. By 2005, 90 percent of female entrepreneurs were still concentrated in six largely overlapping 2-digit industries. At the opposite end, female shares of 2% or less are evident 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 sanitation and education industries. Industries related to research and development and transportation have the lowest share of women entrepreneurs 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.

Policy Implications

A central driver of economic growth over the past century is the increased role of women. This growth via the role of women comes in many forms: better education and health, increased female labor force participation generally, 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.

The infrastructure correlation is the most policy relevant. Inadequate infrastructure affects women in particular ways due to responsibilities regarding household and domestic activities. It is notable that while our within-district infrastructure access is important in predicting female entrepreneurship, access to major cities is not found to influence the gender balance of entrepreneurs. A disaggregted investigation into specific infrastructure types 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 accessing markets.

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 labor needs, input-output markets) predict greater relative female entry rates even after controlling for the focal district-industry’s conditions.

Our analysis suggests that gender-based business networks may play a role in encouraging women’s entrepreneurship. Our analysis is only suggestive in this respect, and points to the need for future research which develops a better understanding regarding the dynamics of gender-based networks, entrepreneurship and productivity. Linkages and spillovers across firms can depend on common traits of business owners, and interactions between the informal (unorganized) and formal (organized) sectors may not be as strong as interactions within each sector. Further research needs to identify how these forces affect small-scale female entrepreneurs and the welfare of women generally. This will be especially helpful for evaluating the performance of industry concentrations in developing economies and guiding appropriate policy actions.

Much recent work emphasizes the role of women in development. India’s economic growth and development depends upon successfully utilizing its workforce. Despite 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.