Rule of Law and Female Entrepreneurship

Working Paper
Published on 29 September 2020

Abstract

Commerce requires trust, but trust is difficult when one group consistently fears expropriation by another. If men have a comparative advantage at violence and there is little rule-of-law, then unequal bargaining power  an lead women to segregate into low-return industries and avoid entrepreneurship altogether. In this paper, Ashraf, Delfino and Glaeser present a model of female entrepreneurship and rule of law that predicts that women will only start businesses when they have both formal legal protection and informal bargaining power. The model's predictions are supported both in cross-national data and with a new census of Zambian manufacturers. In Zambia, female entrepreneurs collaborate less, learn less from fellow entrepreneurs, earn less and segregate into industries with more women, but gender differences are ameliorated when women have access to adjudicating  nstitutions, such as Lusaka's “Market Chiefs” who are empowered to adjudicate small commercial disputes. The authors experimentally induce variation in local institutional quality in an adapted trust game, and find that this also reduces the gender gap in trust and economic activity.

Authors

Nava Ashraf

London School of Economics and Political Science

Alexia Delfino

London School of Economics and Political Science

Edward Glaeser

Harvard University