Gender, formality, and entrepreneurial success

In this paper, we address two entrepreneurship puzzles prevailing in developing countries. First, field experiments on business training programs and grants have shown that it is much more difficult to improve business outcomes for female entrepreneurs than for their male counterparts. Second, empirical studies have revealed that it is difficult to increase entrepreneurial performance in the informal sector. We argue that an extended version of the entrepreneurship model in Lucas (Bell Journal of Economics, 9, 508–523, Lucas 1978) can provide insights into these recurrent puzzles. In particular, if female entrepreneurs are time constrained, interventions that only target business ability and credit constraints may not be sufficient to raise the entrepreneurial outcomes of female entrepreneurs. In addition, if informal entrepreneurs face business constraints in terms of both their access to credit and entrepreneurial ability, interventions that target these constraints together can have a potentially greater impact than those that target either in isolation. We support our theoretical predictions using data from a field experiment with microfinance clients, conducted in Tanzania.