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Despite India’s rapid economic growth in recent decades, India still has very few women entrepreneurs, well below several Sub-Saharan African countries on some average measures. Although India’s overall average female business-ownership share is on an uptrend, the pace of improvement is slow, and there remain huge spatial disparities across states within India.

Which industries have women entrepreneurs? In terms of ownership of equity (which could also be inherited), business stakes held by women are highest in India’s manufacturing sector, even exceeding 50%, typically, in industries related to paper and tobacco products. At the opposite end, women-held shares of 2% or less are seen in industries related to computers, motor vehicles, fabricated metal products and machinery and equipment. In services, female ownership rates in major cities tend to be higher than overall state averages and exceed 30% in industries related to sanitation and education. Industries related to research and development, and transportation have the lowest rates, at 1% or less.

How do local industrial conditions influence the gender balance of new enterprises? We developed metrics that condense complex local industrial structures into simple indicators of the suitability of a given area for an industry in terms of local labour force compatibility or input-output connections. We developed these metrics separately, using female- and male-owned incumbent businesses, to see how gender-specific the benefits of agglomeration are for new entrants (bit.ly/34fOM1W).

Those districts and industries in India that have more incumbent female employment tend to promote more women entrepreneurs. Among district-level traits, a higher female-to-male sex ratio, a higher working-age to non-working age population ratio (‘demographic dividend’), better quality infrastructure and more stringent labour regulations appear important. The relative female entry rate declines with high population density. Education and female literacy rates are not associated with gender differences in manufacturing.

Policy-wise, a district’s infrastructure is the most relevant. Inadequate infrastructure affects women more than men, perhaps because women often bear a larger share of responsibility for household activities. Notably, while within-district infrastructure access is crucial, access to major cities is not found to influence the gender balance. Additional studies have found that transport infrastructure and paved roads within villages are especially important. Travel in India can be unpredictable and limited, and women face greater constraints in geographic mobility imposed by safety concerns and/or social norms. Better transport infrastructure may ease a major constraint on the access that women entrepreneurs have to markets.

Our agglomeration metrics suggest that female connections in labour markets and input-output markets promote the emergence of women entrepreneurs. A one-standard deviation increase in either of these incumbent conditions correlates with a 2%-3% increase in the share of new market entrants who are female. Most of the basic district-level linkages observed for manufacturing are also seen in services. Somewhat surprisingly, though, a higher female entry ratio in services is not associated with a better sex ratio in the district, but female literacy rates and general education levels are more predictive. This link may be due to services being more skill-intensive than manufacturing in India. Stronger female-owned incumbent businesses again predict greater female entrepreneurship in service industries.

What can be done? A central driver of economic growth over the past century has been the increased role of women entrepreneurs. This phenomenon takes many forms: better education and health that increase female labour-force participation, reduced discrimination and wage differentials that encourage more effort, and improved career-advancement practices that promote talented women into leadership and managerial roles. Simply put, empowering half the country’s potential workforce offers significant economic benefits beyond promoting gender equality.

The key drivers of women entrepreneurship are investment in infrastructure and education, which predict a higher proportion of businesses started by women in India. We find evidence of agglomeration economies in both manufacturing and services, where higher female ownership among incumbent businesses within a district- industry predicts a greater share of women as subsequent entrepreneurs. Moreover, higher female ownership of local businesses in related industries (with similar labour needs, for example, or input-output markets) predict greater relative female entry rates.

Gender networks thus clearly matter for entrepreneurship. However, we need to develop a better understanding of how such networks influence aggregate efficiency. An important finding is that these linkages and spillovers across firms can depend a lot on the common traits of business owners. Likewise, interactions between informal and formal sectors may not be as strong a factor as interactions within each sector.

For India to become a $5 trillion economy, entrepreneurship by women must play a bigger role in its economic development. Despite recent economic advances, India’s gender balance on this measure is among the lowest in the world. Improving it is important not just for gender equality, but the entire economy. While achieving economic equality sometimes require some tough choices to be made (like progressive taxation that may discourage effort), the opposite is true here.

Ejaz Ghani worked at The World Bank and has taught economics at Delhi and Oxford universities.

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