Political reservations and women’s entrepreneurship in India

Ejaz Ghani, William Kerr, Stephen O'Connell

02 October 2014

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India’s 73rd Constitutional Amendment Act, passed in 1992, encompassed a set of reforms implementing a nationally-standardised and decentralised system of local government. These reforms, also known as the Panchayati Raj, importantly required a one-third seat reservation for women among local governance bodies. A large body of research has shown distinct effects of including women in the political sphere in India, e.g. higher shares of local investment in infrastructure and related public goods valued by women (Chattopadhyay and Duflo 2004a,b), improved perceptions of women by men when exposed to women in leadership roles and greater aspirations for younger women (Beaman et al. 2009, 2012), and more reporting of crimes against women (Iyer et al. 2012). The reservations system has also gained the country relative acclaim among international comparative measures in terms of women’s political participation (Hausmann et al. 2011).

Figure 1 shows a staggered timing of the implementation of these reforms by state, with considerable variation across states. In a recent paper, we use establishment-level data for India’s organised and unorganised manufacturing sectors in 1994-95, 2000-01 and 2004-05 to quantify the link between this state-level implementation timing and the role of women in Indian manufacturing (Ghani et al. 2014).

Figure 1. Effective implementation year of political reservations by state

Source: Figure 1.1, Study on EWRs in Panchayati Raj Institutions, Ministry of Panchayati Raj, GOI (2008). Notes: Table displays implementation of nationally-mandated political reservations.

Figure 2 contains a graphical summary of our primary empirical results. The first two outcomes measuring new women-owned establishments and employment in these establishments, respectively, show a solid connection between the implementation of political reservations and women’s entrepreneurship. The elasticities suggest a growth in new women-owned establishments and associated employment of approximately 40% after political reservations were implemented. (New women-owned establishments account for on average 15% of all women-owned establishments.) This growth in entry is associated with a positive response in total counts of women-owned establishments, but this response is imprecisely estimated. We then examine employment of women in manufacturing overall, and find little effect. Finally, we separately consider employment in male-owned unorganised establishments, female-owned unorganised establishments, and the organised sector only. While point estimates tend to be positive, there is no measurable evidence that political reservations increased women’s employment in any of these segments of the manufacturing sector. Although overall employment of women in manufacturing does not increase after the reforms, we find significant evidence that more women-owned establishments were created in the unorganised manufacturing sector following implementation of the reforms.

Figure 2. Difference-in-differences estimates of political reservations  implementation on female labour force activity

Note: Graphic depicts point estimates with 90% confidence intervals.
Source: Table 2 of Ghani, Kerr and O’Connell (2014).

Figure 3 uses this same framework to consider several segments of female-owned establishment entry in the unorganised sector. We first estimate the response via employment in all new women-owned businesses, and then separately estimate this response for household-based and new businesses based outside the household. Our findings suggest that the overall entry effect is especially concentrated in household-based businesses. Further estimations highlight that the entry is higher among smaller establishments, as well as businesses that do not rely on external financing.

Figure 3. Difference-in-differences estimates of political reservations implementation on segments of female-owned businesses

Note: Graphic depicts point estimates with 90% confidence intervals. Source: Table 3 of Ghani, Kerr and O’Connell (2014).

Figure 4 summarises estimations interacting the implementation effect with traits of the local industry to investigate whether certain traits correspond to larger effects of the reservations. We first find that the entry response to the political reservations was stronger in industries where women-owned establishments represented a larger share of establishments nationally in 1994. We also find heightened entry in industries that traditionally centred on household-based establishments. The women’s entrepreneurship response is weaker in industries with larger average establishment sizes, value-added per worker, and fixed capital intensity.

Figure 4. Interaction effects between implementation and local industrial structure

Note: Graphic depicts point estimates with 90% confidence intervals. Source: Table 4 of Ghani, Kerr and O’Connell (2014).

Overall, the implementation of political reservations had strong effects for empowering women in India in many spheres. While we do not see much evidence that this increased women’s employment in manufacturing, we do identify that women are more likely to start new establishments in the unorganised sector after the reforms. This growth in entrepreneurship was concentrated in industries that women have traditionally been active in and at the scale of household establishments.

Historical experience suggests that increased inclusion of women in the economic sphere undoubtedly contributes to both aggregate growth and household welfare; in this research, we have opened the door to understanding one potential factor that drives greater economic inclusion.

This linkage is important given that many long-term gains and entrenchment of the empowerment benefits from political reservations can be aided by better economic opportunities that grow in parallel with political voice. These linkages may also affect economies in other ways, given the rise in women’s participation. However, we recognise that we are as yet still just beginning to identify the local business and social factors that unlock female entrepreneurship and the economic participation of women, and look forward to future work that considers other economic outcomes and evidence from outside of India on these important issues.

References

Beaman, Lori, Raghabendra Chattopadhyay, Esther Duflo, Rohini Pande, and Petia Topalova, “Powerful Women: Does Exposure Reduce Bias?”, Quarterly Journal of Economics 124:4 (2009), 1497-1540.

Beaman, Lori, Raghabendra Chattopadhyay, Esther Duflo, Rohini Pande, and Petia Topalova, “Female Leadership Raises Aspirations and Educational Attainment for Girls: A Policy Experiment in India”, Science 335 (2012), 582-586.

Chattopadhyay, Raghabendra, and Esther Duflo, “The Impact of Reservation in the Panchayati Raj: Evidence from a Nationwide Randomized Experiment”, Economic and Political Weekly 39:9 (2004a), 979-986.

Chattopadhyay, Raghabendra, and Esther Duflo, “Women as Policy Makers: Evidence from a Randomized Policy Experiment in India”, Econometrica 72:5 (2004b), 1409-1443.

Ghani, Ejaz, William Kerr, and Stephen D. O'Connell, “Political Reservations and Women’s Entrepreneurship in India”, Journal of Development Economics 108 (2014), 138-153.

Hausmann, Ricardo, Laura Tyson, and Saadia Zahidi, The Global Gender Gap Report 2011 (Geneva, Switzerland: World Economic Forum, 2011).

Iyer, Lakshmi, Anandi Mani, Prachi Mishra, and Petia Topalova, “The Power of Political Voice: Women's Political Representation and Crime in India”, American Economic Journal: Applied Economics 4:4 (2012), 165-193.

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Topics:  Development Gender

Tags:  India, entrepreneurship, firms

Lead Economist in Economic Policy and Debt, PREM Network, World Bank

Professor at Harvard Business School

PhD Candidate in the Department of Economics at The Graduate Center, City University of New York

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