Invest in women? The effects of aid on female entrepreneurship

There is a lot of talk about “investing in poor women”. They will grow businesses, get richer, be empowered, and invest in children. So give them a cow or a grant or a microloan.

It’s been a very effective marketing message for aid agencies, but it’s not clear it’s true. Especially the part about women entrepreneurs and women empowered. A lot of the experimental evidence has been pretty pessimistic on this front–to the surprise of many.

This article talks about how established female entrepreneurs don’t have the same returns to cash as men. This one discusses the weak effects of microloans on business growth. This book on how conditional cash transfers do many good things, but starting female enterprises and empowering women is not among them. There’s some evidence giving poor women cows helps, but a host of similar trials (not quite out) are suggesting more tepid results.

Before you get upset or pessimistic, read on.

There’s a big hole in this evidence. These programs don’t necessarily do the simplest thing for the most needy people: find very poor women who don’t already have a business, give them cash, and let them decide what they want to do themselves. Get rid of the conditions and the cows and the ridiculous microloan interest rates and let them do their thing.

Now things start looking up. That’s what I and several coauthors did with AVSI Uganda, working with some of the poorest women in the world. Here is the policy report and brief.

The short story: in 18 months, they become petty traders, incomes double, with a big boost to savings and poverty reduction. (Did I mention that income doubles?)

We also randomly evaluated the paternalistic part–whether social workers held the women accountable for investing the money in business, and provided follow-up visits and advice. This actually boosted incomes (by some measures at least), but not so much that it was worth the expensive follow-up. Better, we argue, to just give more women more cash. Or find a way to deliver the support and accountability cheaply.

Why did this intervention build new female businesses where others have seen tepid results? Hard to say. It’s a different country than the others, and women in northern Uganda may be further behind, and more constrained. So perhaps we should expect more potent results. The more coiled the spring, the bigger the bounce on release.

My hunch, though, is that it mattered that these women weren’t already entrepreneurs, that they were given cash, and that they weren’t confined to cows or tailoring training or other things we think are good for them.

Two other big findings. One is that the cash transfers were large enough that they shifted the whole economy, transforming prices, agricultural wages, and the distribution of income. There were winners and losers. More on this in a future paper and post, but the immediate lesson is this: big transfer programs usually ignore the distributional effects, and (more importantly) the distributional conflicts.

The other big finding: for all the increase in business and incomes, we don’t see any evidence these women feel more “empowered”. No more decision-making power in the household, no more independence, and no less domestic violence (among other measures). And they are no less depressed or stressed. This is a common-enough finding in the psych literature that there’s a name for it–“the impact paradox”. But you don’t hear that very often in the program designs or sales pitches. Aid may have to make the case for investing women on the economic case alone. Forthunately that may be a strong case to make.

The story, of course, is more nuanced. Read the full report or see the policy brief here.