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Thursday, 27 October 2011






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The puzzle of gender and micro enterprise returns

Thanks to efforts like those of the Grameen Bank, there is a strong perception that women are good recipients of micro-finance-they are more credit-constrained because they are poorer and have less collateral-but as Muhammad Yunus argues, they are supposed to be better managers of scarce resources and have greater long term vision.

As a result, microcredit institutions tend to favour women-they are 97% of Grameen Bank’s borrowers, and 65-70% of global microfinance institutions like FINCA and ACCION. So, when a 2008 study in southern Sri Lanka found that although male micro-entrepreneurs who got a capital grant showed profits of around 9 percent per month (over 100% annually), female micro-entrepreneurs who got a similar grant showed zero profit, this was something to worry about [Suresh de Mel, David McKenzie and Chris Woodruff, Returns to Capital in Microenterprises: Evidence from a Field Experiment, The Quarterly Journal of Economics vol 123(4), pages 1329-1372 http://qje.oxfordjournals.org/content/123/4/1329.short ]. This group of academics (let’s call them DMW for short) set about exploring this puzzle further and the results were published in a paper titled “Are Women more credit-constrained? Experimental evidence on Gender and Microenterprise returns” in the American Economic Journal: Applied Economics, the following year. The results of these studies are well known internationally, especially in the development economics field, but they are less known locally, and therefore warrant highlighting in this monthly column on gender and economics.

The field study on which these studies were based belongs to a now fairly common methodology in development economics-randomized field experiments. These are a little bit like random clinical trials in medicine in the sense that they apply some treatment to a randomly selected “treatment” group, while a placebo is given to the “control” group. Field experiments in economics are somewhat similar, except that the treatments are more commonly things like cash transfers. In the DMW study, the treatments were cash or in-kind grants, given to micro-enterprises (firms with less than Rs. 100,000 worth of assets).

These firms fell into two broad categories-retail traders or “sillara kada” and manufacturing/services-mainly sewing clothing, making lace, making food, like hoppers and string-hoppers, making bamboo products and repairing bicycles.

Some firms got grants equal in value to about 3 months’ in profits, while others got grants double this value, and the unlucky “control” group got a consolation prize of about 3 weeks profits.

DMW then followed up this sample every few months, tracking their profits over 11 waves of subsequent interviews. What they found was that while male enterprise owners who got this grant showed monthly profits of 9%, female enterprise owners who got this grant, showed-nothing !

Well, there are some obvious reasons why female entrepreneurs might not make any profits-maybe these women entrepreneurs didn’t invest their cash on the enterprise, whereas male entrepreneurs did. DMW had collected enough information to test if this was so, it turned out this was true for the smaller grant-women had invested less of it in the enterprise than men— but that the opposite was true for the larger grant. DMW then worked out the profit based on the actual amounts that men and women invested-and found the result to be the same-men had higher returns/profits (on smaller and larger investments) and women still made zero profits, even though they invested 85% of the larger grant into the enterprise.

DMW then considered a set of factors that focused on how these enterprises functioned as houeholds. Firstly, they considered the effect of children. There is a lot of evidence that income earned by women gets spent on family stuff-food, health, education-more than income earned by men. So they tested if this were the case with these entrepreneurs. Not so.

DMW next considered that perhaps the extra cash had an effect on how much (extra) time the entrepreneurs needed to work. For example, if the grant was used to buy a piece of equipment, to actually get a return from this equipment, they would also need to put in more time. And perhaps males were able to do so, but females were not, owing to their household responsibilities. Well, it turned out male and female owners worked roughly the same amount of extra hours and there was no effect of the extra hours on profits.

Could it be that female entrepreneurs tended to under-report incomes (more than males)? DMW tested this as well, by asking both males and females, if households like theirs tended to under-report income, and by what percentage? Both parties provided similar answers-again, no difference between males and females.

Did entrepreneurs tend to under-report profits if the spouse was present-yes, but again, both males and females did so-by roughly the same percentage of profits.

DMW then look at a set of factors that affect profits-access to credit, risk and entrepreneurial ability. Even after controlling for access to credit, the results remain the same-men have high profits, and women have zero profits.

DMW use lottery games with the entrepreneurs to measure their risk aversion. Controlling for risk aversion makes no difference to the results.

They then use measures of entrepreneurial ability that have been developed by industrial psychologists to measure different facets of the entrepreneurial personality. They used 19 alternative measures of owner ability and motivation-factors such as mother’s and father’s previous business experience, passion for work, tenacity, trust, work centrality-none of which could explain low female profits.

Finally, DMW look at whether differences in sector of work. For broad categories of sectors, there seems to be no effect on the results of controlling for sector. They then go into finer detail, and find a much larger gender difference. For example, to quote “where male owners in industries without females have returns to capital of 9.5 percent, female owners in industries without males have returns to capital of negative 8.5 percent.” Examples of the former might be bicycle repair shops, while the latter might be lace makers or string-hopper makers.

When DMW presented the results of this study to a forum of micro-finance institutions in Sri Lanka, their audience was not completely taken by surprise. One individual pointed out that having observed this feature among their borrowers they had provided training to women in non-traditional areas-such as the training to become an electrician. However, the difficulty was that no one wanted to hire a female electrician!

Labour economists and sociologists have been studying a similar phenomenon, for ages, in the labour market, where it has a name-occupational segregation. So schoolteachers and nurses-who are predominantly women-are typically paid very low wages, while lawyers and surgeons-predominantly male occupations-are paid very high wages. Feminist/radical analysts argue that it is precisely because these occupations are female dominated that they are paid low wages. As soon as males enter these domains, average wages rise-and similarly, as soon as females enter the male domains-average wages fall. Certainly, occupations in the West have become less segregated and the accompanying trend is that wage gaps between these occupations have fallen.

The question arises as to why women persist-in these jobs, and in these enterprises, if they are so low paying. The anecdote from the MFI individual provides part of the answer. They have little option. Social norms that prescribe gender roles and responsibilities make it difficult for women to break out of the traditional mould. If female empowerment is to take place, these are the areas in which it must do so.

The writer is a Senior Lecturer, Department of Economics and Statistics, University of Peradeniya.

Preferring XY to XX

Once upon a time not so long ago the mother of a newborn baby girl wrote a letter to her friend. “I was ready to love my baby with all my heart and was so happy when I first held my baby girl in my arms”. Little did she know the birth of her daughter would soon destroy her family. “My husband wants to divorce me,” she continued. “When he knew the baby was a girl, he left quickly.” Reluctant to blame only her husband, she pointed to her in-laws. “He is the only boy, so it is important for his parents that we have a son,” she explained. “Although he had been hoping for a boy, I never thought he would act like this.”

Dr. A.T.P.L. Abeykoon

Who will look after Mom and Dad?

A mother whose fate was the opposite of the woman who wrote the above letter recalls the good wishes she had received from her family when she heard she was pregnant with a boy. “When we found out we were having a boy, we were surprised by the number of women who expressed a preference for boys, telling us how lucky we were and how they wished they’d had a boy, etc. It made us a little uncomfortable!” she recalled cradling her son in her arms. She repeated the words of a cousin who had congratulated her saying “I hope more people have boys so my girls will be happy.”

Old attitudes die hard. Another young woman who has two daughters says when she gave birth to her youngest daughter the midwife had smirked saying “We will be seeing you again”. When she had asked why would that be the midwife said “Don’t you want a son?”

Yet, these responses seem trivial when compared to the harsher attitudes of some societies elsewhere in the world that have been bastions of male chauvinism for uncountable centuries. It is said that until a few decades ago, the drowning of infant girls was tolerated in rural areas of China while in Korea (at a time when Korean parents could decide on the sex of their child), there were 116.5 baby boys for every 100 girls born. In Pakistan according to a Demographic and Health Survey conducted in 1990/91 about one third of the women with no children desired to have a son, while the preference for having a daughter was negligible. Among those who had two daughters and no son, almost all (93 per cent) wanted their next child to be a son.

Why should this be? Why should some parents prefer XY to XX in their offspring?

“Economic status, kinship systems, traditions and religious values, all contribute to a strong overall son preference in South Asia” says Dr. A.T.P.L. Abeykoon, former Director, Population Division, Ministry of Health and Social Services and Senior Fellow at the Institute for Health Policy (IHP). “In India and Bangladesh for example, traditional patrilineal kinship systems require women to marry out of their families of origin and after marriage not provide financial or even emotional support to their parents. In the Hindu tradition, only sons can pray for and release the souls of dead parents, and only males can perform birth, death and marriage rituals.”

In other words a girl was seen as just another mouth to feed, another dowry to pay, a temporary family member who would eventually leave to serve her husband’s kinsmen.

What could be done to reduce this desire for sons in South Asia? “The status of women has an important influence on son preference in South Asia.” says Dr. Abeykoon. “Increasing the economic opportunities for women and raising the value of women’s labour would increase the likelihood of parents regarding their daughters as economic assets rather than as liabilities.”

Dr. Abeykoon thinks even though son preference still exists in South Asian countries like India, Pakistan and Bangladesh “it has been shown that improvements in the status of women during the past two decades have weakened the preference for sons in Sri Lanka.”

Dr. Abeykoon gives several reasons for Sri Lanka being an outlier in South Asia with regard to sex preference. “Compared with other South Asian countries, the status of women in Sri Lanka is found to be more advanced.” says Dr. Abeykoon. The many social welfare programmes carried out during the post-independence decades had created many favorable conditions which promoted greater participation of women in the development process. These include factors like the rapid expansion of literacy and educational attainment of women, improved life expectancy, decline in fertility and the wider participation of women in formal and informal economic activities.

“Nowadays more and more parents prefer to have a baby girl over a baby boy” observes Dr. Abeykoon. This is mainly because parents are now less likely to rely on their children for financial support after retirement, which makes it less necessary to have a son, who was assumed to be a better breadwinner a few decades ago. It is also observed that parents who are planning just one child believe a girl will care for them emotionally in their old age.

Or could it simply be because it is more fun bringing up girls than boys?

Could be. Contrary to the beliefs of her grandmothers, the attitudes of teenagers in China towards baby girls show how the tide has begun to turn. In an interview given to the New York Times Jiang Xu, a nineteen year old Chinese girl says she prefers a daughter over a son. “To have a boy means happiness for a moment. To have a girl means a lifetime of good fortune.”

Whether this is true or not, whether society or friends or relatives and even the father might approve or not, undoubtedly every mother would agree that any gender preference she might have had before the baby is born becomes irrelevant once the actual baby, not some abstract “he” or “she,” finally arrives.

After all, be it a girl or a boy, all babies are capable of “making love stronger, the days shorter, the nights longer, bank accounts smaller, homes happier, clothes shabbier, the past forgotten, and the future worth living for”. If only we will let them.

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