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Are Women More Credit Constrained? Experimental Evidence on Gender and Microenterprise Returns

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Author Info

  • de Mel, Suresh

    ()
    (University of Peradeniya)

  • McKenzie, David

    ()
    (World Bank)

  • Woodruff, Christopher

    ()
    (University of Warwick)

Abstract

In a recent randomized experiment we found mean returns to capital of between 5 and 6 percent per month in Sri Lankan microenterprises, much higher than market interest rates. But returns were found to be much higher among men than among women, and indeed were not different from zero for women. In this paper, we explore different explanations for the lower returns among female owners. We find no evidence that the gender gap is explained by differences in ability, risk aversion, or entrepreneurial attitudes. Nor do we find that differential access to unpaid family labor or social constraints limiting sales to local areas are important. We do find evidence that women invested the grants differently from men. A smaller share of the smaller grants remained in the female-owned enterprises, and men were more likely to spend the grant on working capital and women on equipment. We also find that the gender gap is largest when we compare male-dominated sectors to female-dominated sectors, although female returns are lower than male returns even for females working in the same industries as men. We then examine the heterogeneity of returns to determine whether any group of businesses owned by women benefit from easing capital constraints. The results suggest there is a large group of high-return male owners and smaller group of poor, high-ability, female owners who might benefit from more access to capital.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3743.

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Length: 45 pages
Date of creation: Oct 2008
Date of revision:
Publication status: published in: American Economic Journal: Applied Economics, 2009, 1(3), 1-32
Handle: RePEc:iza:izadps:dp3743

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Keywords: microfinance; gender; microenterprises; randomized experiment;

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References

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  1. Kevane, Michael & Wydick, Bruce, 2001. "Microenterprise Lending to Female Entrepreneurs: Sacrificing Economic Growth for Poverty Alleviation?," World Development, Elsevier, vol. 29(7), pages 1225-1236, July.
  2. Shahidur R. Khandker, 1998. "Using Microcredit to Advance Women," World Bank Other Operational Studies 11523, The World Bank.
  3. Esther Duflo & Christopher Udry, 2004. "Intrahousehold Resource Allocation in Cote d'Ivoire: Social Norms, Separate Accounts and Consumption Choices," NBER Working Papers 10498, National Bureau of Economic Research, Inc.
  4. Akresh, Richard, 2005. "Understanding Pareto Inefficient Intrahousehold Allocations," IZA Discussion Papers 1858, Institute for the Study of Labor (IZA).
  5. Annamaria Lusardi & Olivia S. Mitchell, 2011. "Financial Literacy and Planning: Implications for Retirement Wellbeing," NBER Working Papers 17078, National Bureau of Economic Research, Inc.
  6. McPherson, Michael A., 1996. "Growth of micro and small enterprises in southern Africa," Journal of Development Economics, Elsevier, vol. 48(2), pages 253-277, March.
  7. Suresh de Mel & David McKenzie & Christopher Woodruff, 2008. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1329-1372, November.
  8. Simeon Djankov & Edward Miguel & Yingyi Qian & Gérard Roland & Ekaterina Zhuravskaya, 2005. "Who are Russia's Entrepreneurs?," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 587-597, 04/05.
  9. Markus Goldstein & Christopher Udry, 2005. "The Profits of Power: Land Rights and Agricultural Investment in Ghana," Working Papers 929, Economic Growth Center, Yale University.
  10. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  11. Esther Duflo, 2000. "Grandmothers and Granddaughters: Old Age Pension and Intra-household Allocation in South Africa," NBER Working Papers 8061, National Bureau of Economic Research, Inc.
  12. Fajnzylber, Pablo & Maloney, William F. & Montes-Rojas, Gabriel V., 2009. "Does Formality Improve Micro-Firm Performance? Quasi-Experimental Evidence from the Brazilian SIMPLES Program," IZA Discussion Papers 4531, Institute for the Study of Labor (IZA).
  13. de Mel, Suresh & McKenzie, David J. & Woodruff, Christopher, 2009. "Measuring microenterprise profits: Must we ask how the sausage is made?," Journal of Development Economics, Elsevier, vol. 88(1), pages 19-31, January.
  14. David J. McKenzie & Christopher Woodruff, 2006. "Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 3-42.
  15. David McKenzie & Christopher Woodruff, 2008. "Experimental Evidence on Returns to Capital and Access to Finance in Mexico," World Bank Economic Review, World Bank Group, vol. 22(3), pages 457-482, November.
  16. Udry, Christopher, 1996. "Gender, Agricultural Production, and the Theory of the Household," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1010-46, October.
  17. Mead, Donald C. & Liedholm, Carl, 1998. "The dynamics of micro and small enterprises in developing countries," World Development, Elsevier, vol. 26(1), pages 61-74, January.
  18. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Measuring microenterprise profits : don't ask how the sausage is made," Policy Research Working Paper Series 4229, The World Bank.
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  1. Dads and Development
    by David McKenzie in Development Impact on 2012-06-17 18:47:07
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