Aggregate Implications of Barriers to Female Entrepreneurship

We develop a framework for identifying and quantifying barriers to labor force participation (LFP) and entrepreneurship faced by women in developing countries, and apply it to the Indian economy. We find that women face substantial barriers to labor force participation (ca. 2.5 times those of their male counterparts). Costs for expanding businesses through the hiring of workers are also substantially higher for women entrepreneurs. However, there is one area in which female entrepreneurs have an advantage: the hiring of female workers. We show that this pattern is not driven by the sectoral composition of female employment. Consistent with this pattern, we find that even without any policies that promote female LFP, boosting female entrepreneurship can significantly increase female LFP. Counterfactual simulations indicate that removing all excess barriers faced by women entrepreneurs would: (a) double female LFP; (b) substantially increase the fraction of female-owned firms (by seven times); (c) increase earnings of both male and female workers and entrepreneurs; (d) generate substantial aggregate productivity and welfare gains  (ca. 1.5% and 40% respectively). These gains are due to higher LFP, higher real wages and profits, and reallocation: low productivity male-owned firms previously sheltered from female competition are replaced by higher productivity female-owned firms previously excluded from the economy.