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Are female firms less productive? Findings from the Rural Investment Climate Pilot Surveys

Rita Costa's picture

The potentially deleterious effects of gender disparities on growth and poverty reduction have been receiving progressively more policy attention (reflected, for instance, in the inclusion of the promotion of gender parity amongst the Millennium Development Goals and the 2012 World Development Report). Inequities in labor market opportunities are of particular concern since labor earnings are the most important source of income for the poor in the vast majority of developing countries.
Although the vast majority of the poor live in rural areas and rural non-farm enterprises account for about 35-50% of rural income and roughly a third of rural employment in developing countries, relatively little is known about gender inequities in rural non-agricultural labor market outcomes due to data-limitations. This is unfortunate given the proliferation and diversification of rural non-farm activities and their potential to alleviate poverty, especially in countries where the importance of agriculture as an employer is likely to diminish.

In a recent working paper, “Gender and Rural Non-farm Entrepreneurship,” (forthcoming in World Development) using the Rural Investment Climate Pilot Surveys, novel matched household-enterprise-community datasets from Bangladesh, Ethiopia, Indonesia and Sri Lanka, we document and analyze gender differences in individuals’ activity portfolio choices, examine how successful female entrepreneurs are compared to men and explore potential explanations for gender differences in participation in off-farm activities as well as  firm performance.

Such gender differences are large; far fewer women engage in income earning activities. Except for Ethiopia, women are much less likely to be entrepreneurs or working in a non-farm enterprise. Nonetheless, non-farm enterprises are an important source of employment for women who partake in income earning activities and especially so for those who are the heads of their households. Somewhat surprisingly, women’s educational attainment and the number of children in the household do not help predict participation in entrepreneurship. A possible explanation for the latter finding is that running a non-farm firm is more compatible with combining domestic work with income earning activities than wage employment is, which is consistent with most non-farm enterprises managed by women being home-based.

Female firms are both much smaller and much less productive on average, although gender differences in productivity vary dramatically across countries.  For example, mean log differences in output per worker and firm size suggest that firms run by Bangladeshi men on average produce more than ten times as much output per worker than female firms, and are on average three times as large. By contrast, in Indonesia, where gender segregation patterns are least pronounced, there are no significant gender differences in output. Nonetheless, male firms are on average a third larger than female firms.

These differences in performance are overwhelmingly driven by sorting. Once differences in size and sector are accounted for, gender productivity differentials diminish. Differences in inputs usage also provide part of the explanation. Once these are conditioned on, gender productivity differentials become insignificant in Sri Lanka and reverse sign in Bangladesh, with male firms being significantly less productive. Women’s productivity disadvantage only remains statistically significant in Ethiopia.

Gender differences in productivity are not due to returns to scale; while male owned firms are much larger, we did not find strong evidence of increasing returns to scale. Nor are productivity differentials driven by differences in capital intensity: capital labor ratios do not significantly vary by gender in any of the countries considered. Moreover, even though male managers are on average much better educated than female managers this does not appear to explain their superior productivity performance.  Similarly, we found little support for the idea that gender productivity differences are due to a differential gender impact of the local investment climate, including access to credit.