Gender, Enterprise Ownership, and Labor Allocation in MENA: the Roles of Islam, Oil, and Government Policies

We document a relatively low share of women among small and medium enterprise (SME) owners in the Middle East and North Africa (MENA). This phenomenon appears to be related to the low female labor force participation (LFP) rates commonly observed in the region. However, the connection is not straightforward because the rates of large firm ownership by women in MENA are comparable and sometimes higher than some other world regions. To take a step toward understanding this puzzling pattern, we start with a framework that takes account of economy-wide interactions between firm ownership, employment, and outside options. We then use a unique cross-country micro dataset and a two-level model to separate out the role of individual characteristics from the influence of country conditions. Our first-level micro analysis suggests that the young age structure of MENA population helps explain part of MENA women’s low participation and low SME formation. At the second level, we find that the prevalence of conservative religious culture, particularly the cultural and legal rule that husbands are financially responsible for their families’ expenses, rather than sharing responsibility jointly with their wives, may be a key factor that helps explain the pattern of labor allocation. In addition, lack of government effectiveness, the relative closed-ness of MENA economies, and the gap between educational attainments of women and men in the past have also contributed to women’s low LFP and SME ownership. These are all policy areas in which governments can make a difference. We also explore the role of a number of other factors and show their roles in labor allocation, though they do not help explain the current weaknesses in patterns of participation and employment in the region. One very notable finding among these is that, in contrast to the results of many other studies, resource rents don’t seem to be responsible for low LFP and small firm formation by MENA women. Quite to the contrary, they seem to have helped raise both of these outcomes in the oil-rich countries of the region. We attribute this sharp difference in findings to the closer cross-country comparability of our data and our micro-based approach.