Aggregate Implications of Barriers to Female Entrepreneurship

Abstract

We develop a framework for identifying and quantifying barriers to entry and operation faced by female entrepreneurs in developing countries, and apply it to the Indian economy. We find that despite considerable progress over time, female entrepreneurs still face substantial entry and business registration costs (almost twice their male counterparts’). The costs of expanding a business, conditional on entry, are also substantially higher for women. However, there is one area in which female entrepreneurs have an advantage: hiring female workers is easier for them. We show that this pattern is not driven by the sectoral composition of female employment. Counterfactual simulations indicate that removing all excess barriers faced by women entrepreneurs would: (a) increase the fraction of female-owned firms significantly (nine times); (b) increase the real wages of female relative to male workers; and (c) generate substantial aggregate productivity and welfare gains (ca. 7% and 18% respectively). These large gains are due to reallocation: low productivity male-owned firms previously sheltered from female competition are replaced by higher productivity female-owned firms previously excluded from the economy.