From Raj Nallari and Breda Griffith's lecture notes.
Competitive Exchange Rates
If the central bank is able to maintain a competitive exchange rate, it may help offset some of the gender bias observed during contractionary inflation-reduction by Braunstein and Heintz (2006). The underlying reason for this effect is that in many countries the growth of women’s employment, particularly formal employment and wage employment, has tended to be concentrated in tradable sectors and a real depreciation of the exchange rate favors tradable sectors and could help protect women’s employment. To reiterate, Braunstein and Heintz (2006) find empirical evidence that real exchange rates appear to have an impact on the gender bias observed in contractionary inflation-reduction episodes. As discussed last week, in the majority of cases of 51 inflation episodes that they observed, women’s formal employment was disproportionately affected by the slowdown in employment growth. However, about a third of the time, the ratio of women’s to men’s employment actually improved when compared to its long-run trajectory. In each of these cases, the real exchange rate either depreciated or showed no deviation relative to its long-run trend.
Exchange rate fluctuations can have immediate (and important) affects on investment, stock prices, prices of tradeables, and wage rates, particularly in export industries. For example, while export-oriented industries (due to globalization) benefit women through more job-creation (compared to non-export industries), exchange rate fluctuations affects women’s wage response to such exchange rate changes. Goldberg and Tracy (2001) show that U.S. “women, like men, experience most of the expected wage response to dollar fluctuations at times of job transitions, rather than when they remain with the same employer”. For example, a 10 percent depreciation of US dollar is estimated to raise women’s wages by roughly by 1 percent. However, women who have changed jobs, the estimated wage increase is over 2 percent, while for women who stay on their jobs, the estimated wage increase is about 0.75 percent. Similar evidence from exchange rate changes in developing countries and the estimated impact on wages has not been studied.
Inadequate credit for women
Literature on this issue suggests that women’s status within the household is enhanced when they have independent access to financial resources and when they are able to make a contribution to the household income and welfare by increasing their levels of economic activity if not their range of economic activity. Swaminathan and Findeis (2003) using Malawi household data find that access to credit increases participation in farm and off-farm self-employment for women in male households and in off-farm self-employment for female heads. It is common knowledge that men have more access to credit from banks than women, all things remaining equal. For example, Essel (1996) researching the Kakum Rural Bank in the Central region of Ghana, found that men had more access to this rural bank credit than women. He reports that institutional and cultural factors played a role in this gender bias in credit allocation. Institutional factors include the rigid demands by banks (e.g. collateral) while social and economic factors revolve around:
- the fear of women to take risks (perceived by women themselves);
- lack of awareness leading to reduced access to credit; and
- the skewed ownership of traditional resources (which can be used as collateral) in favor of men.