What drives the global land rush?

What drives the global land rush? Authors: Arezki, Rabah; Deininger, Klaus; Selod, Harris
IMF Working Paper No. 11/251

Summary: This paper studies the determinants of foreign land acquisition for large-scale agriculture. To do so, gravity models are estimated using data on bilateral investment relationships, together with newly constructed indicators of agro-ecological suitability in areas with low population density as well as indicators of land rights security. Results confirm the central role of agro-ecological potential as a pull factor. In contrast to the literature on foreign investment in general, the quality of the business climate is insignificant whereas weak land governance and tenure security for current users make countries more attractive for investors. Implications for policy are discussed.


Introduction

After decades of stagnant or declining commodity prices when agriculture was considered a ‘sunset industry’, recent increases in the level and volatility of commodity prices and the resulting demand for land have taken many observers by surprise. This phenomenon has been accompanied by a rising interest in acquiring agricultural land by investors, including sovereign wealth and private equity funds, agricultural producers, and key players from the food and agri-business industry. Investors’ motivations include economic considerations, mistrust in markets and concern about political stability, or speculation on future demand for food and fiber, or future payment for environmental services including for carbon sequestration. Some stakeholders, including many host-country governments, welcome such investment as an opportunity to overcome decades of under-investment in the sector, create employment, and leapfrog and take advantage of recent technological development. Others denounce it as a ”land grab” (Zoomers 2010). They point to the irony of envisaging large exports of food from countries which in some cases depend on regular food aid. It is noted that specific projects’ speculative nature, questionable economic basis, or lack of consultation and compensation of local people calls for a global response (De Schutter 2011).  In a context of diametrically opposite perceptions, the objective of the present paper is to provide greater clarity on the numbers involved and the factors driving such investment. This is done by quantifying demand for land deals, and exploring the determinants of foreign land acquisition for large-scale agriculture using data on bilateral investment relationships. This work is an important first step to assess potential long-term impacts and discuss policy implications.

The analysis of large-scale land deals is relevant for a number of key development issues.  One such issue is the debate on the most appropriate structure of agricultural production. The exceptionally large poverty elasticity of growth in smallholder agriculture (de Janvry and Sadoulet 2010, Loayza and Raddatz 2010) that is reflected in rapid recent poverty reduction in Asian economies such as China, and the fact that the majority of poor are still located in rural areas led observers to highlight the importance of a smallholder structure for poverty reduction (Lipton 2009, World Bank 2007). At the same time, disillusion with the limited success of smallholder-based efforts to improve productivity in sub-Saharan Africa (Collier 2008) and apparent export competitiveness of “mega-farms” in Latin America or Eastern Europe during the 2007/8 global food crisis have led to renewed questions about whether, despite a mixed record, large scale agriculture can be a path out of poverty and to development.

Whatever the envisaged scenario, renewed pressure on land raises the issue of whether there is sufficient competition and transparency to ensure that land owners or users are able to either transfer their land at a fair price or hold on to it as opposed to having it taken away without their consent and in what may be perceived an unfair deal. This resonates with recent contributions to the literature that suggest that resource abundance can contribute to more broad-based development only if well-governed institutions to manage these resources exist (Oechslin 2010). This is borne out by empirical evidence both across countries (Cabrales and Hauk 2011) and within more specific country contexts where resource booms may have fuelled widespread rent-seeking and corruption (Bhattacharyya and Hodler 2010) or even violence (Angrist and Kugler 2008) rather than economic development.

To better understand this phenomenon and its potential impact, an empirical analysis of the factors driving transnational land acquisition is needed. To this end, we constructed a global database with country-level information on both foreign demand for land and implemented projects as documented in international and local press reports. We complement it with country-specific assessments of the amount of potentially suitable land and other relevant variables. We then use bilateral investment relationships from the database to estimate gravity models that can help identify determinants of foreign land acquisition. Results confirm the central role of agro-ecological potential as a pull factor but suggest that, in contrast to what is found for foreign investment more generally, rule of law and good governance have no effect on the number of land-related investment. Moreover, and counterintuitively, we find that countries where governance of the land sector and tenure security are weak have been most attractive for investors. This finding, which resonates with concerns articulated by parts of civil society, suggests that, to minimize the risk that such investments fail to produce benefits for local populations , the micro-level and project-based approach that has dominated the global debate so far will need to be complemented with an emphasis and determined action to improve land governance, transparency and global monitoring.  The paper is organized as follows. Section 2 puts recent land demand into broader context, highlighting the importance of governance in attracting investments. It draws on an analysis of how foreign direct investment (FDI) is treated in the macro-literature to suggest a methodological approach, and outlines how we address specific data needs. Section 3 presents our cross-sectional data on land demand, outlines the econometric approach, and briefly discusses relevant descriptive statistics. Key econometric results in section 4 support the importance of food import demand as motivations for countries to seek out land abroad (‘push factors’) and of agro-ecological suitability as key determinants for the choice of destination (‘pull factors’). They also highlight the extent to which weak land governance seems to encourage rather than discourage transnational demand for land. Section 5 concludes by highlighting a number of implications for policy.


Buy the paper here: http://www.imfbookstore.org/ProdDetails.asp?ID=WPIEA2011251

The Strategic Implications of Closer Indonesia-China Relations

Growing Convergence, Greater Consequence: The Strategic Implications of Closer Indonesia-China Relations. By Greta Nabbs-Keller. Security Challenges Journal. Volume 7, Number 3 (Spring 2011), pp. 23-42. http://www.securitychallenges.org.au/TOCs/vol7no3.html

Indonesia’s relationship with China has been characterised by a history of enmity, but residual concerns belie increasing economic and foreign policy convergence boosted by the positive effects of democratisation on Indonesia’s perceptions of the Chinese. This article will argue that the growing convergence of interests between Indonesia and China is a positive development for Australia. China’s rise has provided the engine of growth for Southeast Asia’s largest economy and has increasingly cemented Indonesia’s importance in the ASEAN-centred regional order. For Australia, it means a stronger, stable, and more prosperous neighbour next door with natural ‘antibodies’ against Chinese assertiveness.

Excerpts (edited):

In a 2008 book on the rise of Asia and the transformation of geopolitics, William Overholt, the Director of Rand Corporation’s Centre for Asia Pacific Policy, made the following argument about Indonesia:

A reviving Indonesia, with its vast territory, large population, and determination to lead the region, still zealously guards against any hint of emergent Chinese hegemony. Even more than other countries in the region, Indonesia has powerful antibodies to any hint of strong Chinese assertion.

It was Overholt’s contention that although the US “had lost stature in Southeast Asia … [this] did not presage Chinese dominance”. Overholt is absolutely correct about Indonesia’s wariness of China and indeed relations have been characterised traditionally by high political drama and a history of enmity. But residual Indonesian concerns about China are only part of the story. They belie ever closer economic and foreign policy convergence boosted by the positive effects of democratisation on Indonesia’s perceptions of the Chinese. Relations between East Asia’s two largest states have undergone a remarkable transformation in the period of Indonesia’s democratisation, with significant implications for the broader security and prosperity of the Indo-Pacific region.

The article will argue that the growing convergence of interests between Indonesia and China evident over the last decade is a positive development for Australia. China’s rise has provided the engine of growth for Southeast Asia’s largest economy and has increasingly cemented Indonesia’s importance in the Association of South East Asian Nations (ASEAN)-centred regional order. For Australia, it means a stronger, stable, and more prosperous neighbour next door with Overholt’s natural antibodies against Chinese assertiveness. Although Indonesia’s relationship with China remains characterised by dichotomous elements—friendship versus residual distrust, economic complementarity versus competition—Indonesia has sought to maximise the opportunities inherent in China’s rise, whilst continuing to hedge against the strategic uncertainties posed by China.



Greta Nabbs-Keller is a PhD candidate at Griffith Asia Institute researching the impact of democratisation on Indonesia’s foreign policy. Her broader research interests include Indonesian civil-military relations and Australian regional foreign policy. Before joining Griffith University, Greta worked for the Department of Defence in Canberra and Jakarta.

IMF: Outlook for Mideast, with Oil-Importing Countries Facing Continued Economic Pressures

IMF Sees Varied Outlook for Mideast, with Oil-Importing Countries Facing Continued Economic Pressures
Press Release No. 11/378
October 26, 2011

Excerpts:

The economic outlook for countries across the Middle East and North Africa region varies markedly, with the oil-exporters seeing a mild pickup in growth in 2011 on the back of higher oil prices, and the oil-importers experiencing a dramatic slowdown, the IMF says in its latest assessment of the region. The IMF’s Regional Economic Outlook for the Middle East and Central Asia, released today, projects growth in the Middle East and North Africa region, including Afghanistan and Pakistan, at 3.9 percent in 2011, down from 4.4 percent in 2010.

The region’s oil-exporting countries (excluding Libya)—Algeria, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, the United Arab Emirates, and Yemen—are forecast to expand by 4.9 percent in 2011, thanks to higher oil prices and oil production. But growth among the region’s oil importers—Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia—will register just under 2 percent (see table).

“Since the beginning of this year, a deterioration in the international economic outlook and the buildup of domestic social pressures have resulted in an economic slowdown in many of the region’s oil-importing countries. But we should not lose sight that the ongoing historical transformation holds the promise of improved living standards and a more prosperous future for the people in the region,” Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, said at the launch conference of the report in Dubai today.



Higher oil prices benefiting oil exporters

Economic activity in the region’s oil-exporting countries has clearly improved, bolstered by continued high energy prices. This expansion is driven by the high level of activity in the countries of the Gulf Cooperation Council (GCC), where growth is projected at 7 percent in 2011, the report shows. Several countries—Saudi Arabia in particular—have stepped up oil production temporarily in response to higher oil prices and shortfalls in production from Libya. “The decision to increase oil production in the wake of disruptions in Libya was an essential contribution toward global energy market stability and enhanced activity,” Mr. Ahmed noted.

Increased oil revenues have created additional room for government spending in the GCC. Several countries announced spending programs early in the year, covering a wide spectrum of measures, such as subsidies, wages, and capital expenditure. At current projected oil prices and levels of production, revenue gains will more than offset the high levels of public spending. In 2011, the oil exporters’ combined external current account balance is expected to increase from $202 billion to $334 billion (excluding Libya), and from $163 billion to $279 billion for the GCC.

But fiscal vulnerability has also increased substantially, as break-even oil prices have risen steadily and are now approaching observed oil prices (see Chart 1). “Oil-exporting countries have understandably increased fiscal spending to address social needs. Looking forward, the widening of non-oil fiscal deficits makes many countries more vulnerable to swings in oil prices, at a time when the world economy is facing heightened risks,” Mr. Ahmed added.

[http://www.imf.org/external/images/pr11378a.gif]

Turning to the financial sector, the report sees a continued gradual recovery. GCC banks in particular, which showed considerable resilience during the global crisis, are now registering capital adequacy ratios in excess of 15 percent, with nonperforming loans below 10 percent. But private-sector credit growth remains cautious.

Looking ahead, the IMF’s assessment foresees a moderation in growth for the region’s oil exporters to about 4 percent in 2012, and notes that these countries also face some downside risks. The most immediate would be the impact of a sharp slowdown in Europe and the United States. Global oil demand could contract substantially, possibly leading to a sustained drop in oil prices. Other risks include further regional unrest and an economic downturn in key trading partners, such as India and China.



Meeting social needs, restoring confidence key priorities for oil importers
As for the region’s oil-importing countries, the political and economic transformations occurring in several of them are advancing slowly and are expected to extend well into 2012. Together with a worsening economic outlook in Europe and globally, the region is seeing a sharp drop in investment and tourism activity. As a result, the recovery in 2012 is expected to be weaker than anticipated, with growth projected at just over 3 percent, according to the IMF report.

“Undoubtedly, the year ahead will be challenging for many countries, with continued political uncertainty, a deteriorating global economic outlook, and higher financing costs impeding a quick economic recovery. Measures aimed at restoring confidence and fostering more inclusive growth will help countries enhance activity and ultimately address the needs of the population,” Mr. Ahmed said.

In response to growing social unrest, the economic downturn, and higher commodity prices, governments in the region have significantly expanded subsidies and transfers. The cost of this social spending remains high, exceeding 10 percent of GDP in Egypt and more than 5 percent of GDP in most other countries. As a result, oil importers’ fiscal deficits are widening by about 1.5 percent of GDP in 2010–11 (see Chart 2).

[http://www.imf.org/external/images/pr11378b.gif]

In the near term, such spending measures are appropriate to lessen the impact of the downturn. But from an efficiency and equity standpoint, it is better for governments to gradually replace universal subsidies with social safety nets that are targeted at the less well-off part of the population, the IMF report states. Resources can then be used for critical investments in infrastructure and education and for supporting much-needed reforms.

Meeting the rising demands of the population will not be easy, the report notes—particularly as most countries have already used their fiscal and international reserve buffers to respond to deteriorating economic conditions in the wake of the Arab Spring, and have less room left to respond to future shocks. Regional partners and the broader international community can facilitate this transition through financing and greater market access for exports.

Conflict has taken a massive human toll in addition to its enormous economic costs in Libya, Syria, and Yemen. The immediate priority for these countries is to avoid further humanitarian crisis and, post conflict, to pursue an agenda of reconstruction and reform.


See tables of selected economic indicators for Middle East, North Africa, Afghanistan, and Pakistan (MENAP) at http://www.imf.org/external/np/sec/pr/2011/pr11378.htm

Under Sec for Internt'l Affairs Lael Brainard Testimony on the U.S.-China Economic Relationship

Under Secretary for International Affairs Dr. Lael Brainard Testimony Before the House Committee on Ways and Means on the U.S.-China Economic Relationship

http://www.treasury.gov/press-center/press-releases/Pages/tg1336.aspx

Oct 25, 2011

Chairman Camp, Ranking Member Levin, distinguished members of the Committee, thank you for the opportunity to testify today on our economic relationship with China.


Challenges and Opportunities
Since the outset, President Obama has placed a high priority on pursuing a more balanced and fair economic relationship with China.  This is central to our goal of doubling exports in five years and supporting several million U.S. jobs.  And, indeed, since 2009, U.S. exports to China have grown by 61 percent, nearly twice as fast as our exports to the rest of the world.  Despite this progress, the playing field is still uneven.  To secure the future for our children, the Administration will continue working hard to get the economic relationship right.

China needs to take action at an accelerated rate, so that the potential of our relationship translates into real near-term benefits for our companies and workers.  China’s leaders understand that China must shift to domestic consumption-led growth, provide a secure environment for the protection and enforcement of intellectual property rights, level the playing field between state-owned and private enterprises—domestic and foreign, and liberalize the exchange rate and financial markets.  China needs to take these actions to sustain its own growth, as well as to address the concerns of its trade partners.  On these issues, we have actively pressed China to accelerate the pace of reform in order to achieve more balanced growth and create fairer competition, and there has been some progress, but there are strong interests within China that favor a go-slow approach.   

In the wake of the financial crisis, with American households saving more and demand weak in Europe and Japan, our exports increasingly will be directed at the fast-growing emerging markets if we are to create the good jobs with good wages that we need to grow our economy.  For the next decade, China is expected to be the biggest source of demand growth in the global economy.  The International Monetary Fund (IMF) forecasts that China’s growth will average 9.4 percent per year over the next five years, and the Organization of Economic Cooperation and Development (OECD) estimates that China’s share of global imports will increase from six percent in 2008, to over nine percent in 2012.  This is a market opportunity that we must seize.

Foreign investment also is playing an increasingly important role in supporting jobs in the United States, and we expect this trend to continue.  In 2009, majority-owned U.S. affiliates of foreign companies were an important contributor to U.S. economic activity, employing approximately five percent of the U.S. private workforce and 17 percent in the U.S. manufacturing sector.  In the decade ahead, China will be a fast-growing source of foreign direct investment among major economies.  Indeed, the stock of Chinese foreign investment in the United States more than doubled last year alone.  Protecting national security is always our first concern, but where Chinese investment does not affect national security, we should welcome it.  To create jobs here at home, it matters whether Chinese investment ultimately ends up in Anhui province, Argentina, or Alabama.

In order to derive a better balance of benefits from trade and investment opportunities with China, we need to see progress on three key challenges.  First, in many sectors in which the United States is competitive globally, China must address a range of discriminatory policies, including those that favor domestic state-owned enterprises through barriers to foreign goods, services, and investment, as well as the provision of subsidies and preferential access to raw materials, land, credit, and government procurement.  Second, rampant theft of intellectual property in China lowers the return to investments in research and development and innovation that represent a fundamental source of our country’s national competitive edge.  Third, China must shift to a pattern of growth that can be sustained, drawing on home-grown demand rather than excessive dependence on exports.  This requires that China bring its exchange rate into alignment with market fundamentals.


China’s Reforms
China’s current headline growth rate may look enviable right now, but China will face daunting challenges in coming years.  We have a tremendous stake in ensuring that China deals with those challenges in a way that fundamentally reorients its growth pattern through greater balance and fairer competition.

China has had remarkable success in lifting hundreds of millions of its citizens out of poverty.  But it has come at some cost, including large-scale environmental degradation and an economy that spends much more on investment than goods and services for its people.  Chinese leaders understand that, with per capita income of around one-tenth of that of the United States in 2011,[1] and per capita household spending less than one-twentieth of that in the United States, the way China grew in the last two decades will not get them to the next stage of development.  Instead, China will face what economists call the “middle income trap.”

China’s excessive dependence on growth driven by exports to advanced economies and investment will need to change.  During the 2008-2009 global crisis, China was able to sustain growth through a massive credit-fueled investment boom.  This will leave a financial hangover for years.  China risks repeating the experience of other fast growing Asian economies that experienced sharp falls in growth soon after their investment-to-gross domestic product (GDP) ratios peaked.  With investment reaching an all-time high of almost 48 percent of GDP, however, China’s peak is higher than other Asian economies.

China already is seeing rapidly slowing labor force growth, and the number of workers in China soon will be on the decline.  While China maintains many advantages, a study by KPMG concluded that rising labor costs in China are shifting a rising market share of light manufactured goods to other producers in Asia.[2]  A recent study by the Boston Consulting Group similarly concluded that China’s cost advantage is rapidly eroding.[3]

In the face of overinvestment and rising wages, China will need to move up the value chain.  But China’s weak protection and enforcement of intellectual property rights threaten to retard the development of Chinese innovation and Chinese brands.

And the adjustment process – whether to greater consumption-led growth, higher value services, or innovation-intensive activities – is hampered by China’s continued excessive reliance on administrative controls, such as credit quotas to maintain price stability and intervention to temper exchange rate adjustment, that are subject to political determinations and thus leave policy making behind the curve.  These controls are reflected in a financial system that fails to offer Chinese households financial assets that keeps up with inflation, let alone economic growth, and starves China’s most innovative firms and sectors of capital, despite massive domestic savings, while also depriving foreign competitors of the opportunity to offer a full range of products and services.  Relying more on market-based prices, such as exchange and interest rates that facilitate adjustment to changing conditions, would make China’s growth more resilient, and avoid an excessive build-up of foreign exchange reserves. 

For sustained growth, China wants greater access to U.S. technologies and high-tech dual use exports, to make progress on bilateral investment, and wants their exports to be accorded the same terms of access as exports from other market economies.  We are willing to make progress on these issues, but our ability to move will depend in part on how much progress we see from China on issues that are important to us.


U.S. Engagement and Enforcement
We have worked tirelessly across the Administration to pursue a tight set of priorities with China – using the Strategic and Economic Dialogue (S&ED), as well as the Joint Commission on Commerce and Trade (JCCT).  And since many other countries share our concerns, we also pursue these issues through multilateral channels, such as the G-20, the IMF, and the World Trade Organization (WTO), which are critical complements to our bilateral engagement.  To advance our goals, whether it is faster appreciation of the exchange rate or reduced barriers to U.S. exports, we need to work smartly with our partners around the world and with China.  And when engagement proves insufficient, this Administration will continue to be more aggressive than any of its predecessors in using all appropriate tools to address the particular problem, such as going after China’s unfair trade practices by taking China to the WTO and vigorously applying U.S. trade remedy laws.

While we face substantial challenges, and our job is far from finished, we have made important progress towards leveling the playing field and making the bilateral relationship more beneficial for American companies and workers.  China’s trade surplus has declined from 7.7 percent of GDP in 2008, to 3.9 percent in 2010, and has declined further in the first half of this year compared to the same period last year, though an important part of the decline was due to slower growth in China’s export markets.  In both its latest Five-Year Plan and the recent S&ED, China committed to targets to promote consumption-led growth, including raising household incomes, increasing minimum wages, and increasing services relative to GDP.

On the exchange rate, since China resumed exchange rate adjustment in June 2010, the renminbi has appreciated about seven percent against the U.S. dollar and about ten percent taking into account China’s higher rate of inflation relative to inflation in the United States.  China’s currency has appreciated nearly forty percent against the dollar over the past five years in real terms.  But the continued rapid pace of foreign reserve accumulation and the ongoing decline in the share of Chinese consumption in GDP indicate that the real exchange rate of the renminbi remains misaligned despite recent movement, and a faster pace of appreciation is needed. 

Renminbi appreciation on its own will not erase our trade deficit.  But allowing the exchange rate to adjust fully to reflect market forces is the most powerful near-term tool available to the Chinese government to achieve two of its top economic goals:  combating inflation and shifting the composition of demand towards domestic consumption.  By contrast, persistent misalignment holds back the rebalancing in demand needed to sustain the global recovery both in China and the world, and gives rise to substantial international concerns and ultimately to trade frictions.  Further, emerging markets that compete with China resist appreciation of their own currencies to maintain their competitiveness vis-à-vis China. 

At the G-20 earlier this month, surplus emerging markets such as China committed to accelerate the rebalancing of demand towards domestic consumption, and to move toward more market-determined exchange rates through greater exchange rate flexibility.

We also are making progress on our bilateral trade and investment priorities, in close collaboration with the Office of the U.S. Trade Representative and the Department of Commerce.  At the most recent S&ED, after commitments made during the January state visit of President Hu and the prior December JCCT, China pledged to rescind all of its government procurement indigenous innovation catalogues, including by provincial and municipal governments.  So far, the Central government has repealed four key measures that underpinned the indigenous innovation product accreditation system, and a number of local governments have taken positive steps.  China also pledged to increase inspections of government computers to ensure that agencies use legitimate software, and to improve its high-level government coordination and leadership mechanisms to enhance long-term protection and enforcement of intellectual property rights.  And last year, China met its S&ED pledge to raise the threshold for central government review of foreign investments from $100 to $300 million, leaving more foreign investment approvals to the mayors and governors who better understand the benefits of foreign direct investment.

Reforming and opening up China’s financial sector also remains a key priority.  This not only would provide Chinese households with savings and insurance products to meet their financial goals without having to save so much of their income, but also would level the playing field with China’s state-owned enterprises for access to credit.  We will continue pushing hard to address market access barriers in China’s financial sector, and we are seeing modest signs of progress.  China now allows foreign banks to underwrite corporate bonds and is creating more opportunities for our financial services firms to manage investments in China as well as manage Chinese investments abroad.  At the most recent S&ED, China committed to allow foreign firms to sell mutual funds, provide custody services, and sell mandatory auto liability insurance.

In short, while we will stand up to unfair and discriminatory practices and demand change, we will continue to engage with and encourage China as it pursues its reforms.  And to meet this generational challenge, we must continue to work to strengthen the multilateral system that governs trade and finance, and not turn away from it.  I believe this is the best way to promote American interests.

Thank you.


References
[1] September 2011 IMF World Economic Outlook Database, using market exchange rates.

[2] KPMG International, Product Sourcing in Asia Pacific 2011, pp. 7-9.

[3] Boston Consulting Group, Made in America, Again, August 2011, p. 5.

Are businesses run by women less productive than businesses run by men?

Where You Work: How Does Gender Matter?
Mary Hallward-Driemeier
Oct 2011

Are businesses run by women less productive than businesses run by men? If we perform a very simple comparison of the average productivity of female and male-owned enterprises, we might answer “yes”. But if we look a bit more closely at the data, a large part of this gap is explained by the fact that women and men are doing different things. If you compare women and men in the same sectors and in similar types of enterprises, the gap shrinks dramatically. Where you work is more important than gender in accounting for the observed productivity gap.

Using data on over 9000 registered enterprises from 32 countries in Sub-Saharan Africa, we see a productivity gap of 6 percent. However, controlling for sector, size and capital intensity, the gap disappears (see chart 1). If we include unregistered firms in the analysis, the unconditional productivity gap widens, as women are disproportionately in the informal sector where productivity is even lower. Nevertheless, the same pattern holds: there is little gender performance gap between similar enterprises.

Chart 1: The Gender Gap in Average Firm Labor
Controlling for enterprise characteristics removes the gender gap in productivity (registered firms in 32 Sub-Saharan African countries)

 

Once comparing like with like, the finding of no or few significant differences between female and male entrepreneurs in performance is encouraging. It confirms that Sub-Saharan Africa has considerable hidden growth potential in its women, and that tapping that potential—including improving women’s choices of where to be active economically—can make a real contribution to the region’s growth.

A similar story emerges when we look at the obstacles faced by men’s and women’s businesses. Once the characteristics of the enterprise are controlled for, gender differences in obstacles are generally not significant. Access to electricity is a constraint, particularly for smaller and medium firms, and issues of skills and regulations for larger firms, regardless of the gender of the entrepreneur. There are, however, two exceptions that have a direct gender angle. First, women report having a harder time accessing credit. This is not only due to their running smaller firms (which itself may be a result of this constraint), women often have less access to collateral. This is correlated with a country’s gender gaps in formal property rights and practical constraints in accessing justice (this topic will be elaborated in an upcoming blog).

Second, women often face greater difficulties in dealing with government authorities. They may be expected to pay higher amounts to get things done, may be less likely to get things done even having paid – and the ‘payment’ sought may not only be monetary. Indeed, over a quarter of respondents, male and female, reported that they had heard of sexual favors being requested to obtain licenses, receive credit or in dealing with the tax authorities.

If where you work rather than gender is associated with performance and the main constraints to firm growth, policy makers need to understand why the observed gender patterns of entrepreneurship persist. One of the most significant predictors of whether an entrepreneur joins the formal or informal sector and the size of their enterprises is education. What we find is that across sectors, there are large gaps in education, but few gender education gaps within a sector. Women and men in the formal sector have very similar educational backgrounds, likewise in the informal sector (see Chart 2). However, where gender comes in is that women have fewer years of education, helping explain why fewer women are in the formal sector.

Chart 2: Education varies more by formal/informal sector than by gender

To expand women’s opportunities, more women need to be able to shift where they work. Tackling underlying disparities in access to human capital and assets are key to these efforts. With the same backgrounds, women are able to run the same types of firms as men with equal results.

See full story: https://blogs.worldbank.org/allaboutfinance/where-you-work-how-does-gender-matter to view full story.