Model Specification:

The dependent variable in our model is women entrepreneurship rate (WER),

measured as the percentage of self -employed women. Alternatively, as a part of
the sensitivity analysis, we consider sum of self-employed (women?) and female
employers. In our baseline model, we assume that women entrepreneurship is
dependent on several economic indicators, labor market variables, age composition
of population and sectoral distribution of employment. We test whether these
determinants have a direct impact on WER, as well as an indirect impact conditional
on the economic development (measured as GDP per capita). Hence our baseline
model is

Lit = i 1URit 2GDPCit 3 INFit 4YDit i t it

(1)

Where, i represents country and t time period. L denotes women entrepreneurship;

UR is the female unemployment rate, GDPC is the per capita income, INF is the
inflation rate, and YD is the ratio between youth dependent population and the

working age population.

is a country fixed effect,

is a period fixed effect, and

it is an independently and identically normally distributed error term with zero

mean and variance 2. Country fixed effects control for all country-specific, timeinvariant variables whose omission could bias the estimates in a typical crosssectional study. For example, these country-specific fixed effects allow for different
degrees of competitiveness, liberalization, efficiency of public administration and
public services, infrastructures, as well as cultural and social norms across
countries. The measure for time-period fixed effect controls for all time-specific,
country-invariant variables whose omission could bias the estimation in a typical
time-series study (see Baltagi, 2005).
To determine whether the impact of other WE determinants is conditional on
economic growth, we introduce an interaction term between GDPC and one of the
variables of interest. Consequently, our model extends to

2
Li,t = i 1URit 2 GDPC it 3 INFit 4 YD it 5 GDPC it 6 it 7 it * GDPC it i t it

(2)

Where,
GDPC.

is the variable whose impact we are investigating at different levels of

*GDPC represents interaction between one of our variables of interest and

age dependency. Since we are primarily interested in evaluating the effect of three
explanatory variables and their interaction with GDPC, we will estimate three
separate models to include: 1) GDPC * youth dependency; 2) GDPC * employment
share in services and 3) GDPC * financial sector development. For example, to
determine the financial sector development on women entrepreneurship at different
levels of age, per capita income, we estimate the model
2
Li,t = i 1URit 2 GDPC it 3 INFit 4 YD it 5 GDPC it 6 FINDit 7 FINDit * GDPCit i t it

(3)
As a next step we calculate the marginal effect of each variable of interest at
different levels of economic development. For this purpose we differentiate equation
(2) with respect to that particular variable. Thus for the calculation of the marginal
effect of financial development conditional on per capita income, we take the
derivative of equation (3) with respect to the financial development variable to
obtain
LP

FIND

6 7 GDPC

(4)
The marginal effect of other variables of interest can be calculated accordingly.
Data Description and Analysis:
We have employed panel data estimation technique to analyze the determinants of
female entrepreneurship at macro level. The period of analysis is 1980-2010. Our
analysis focuses on determinants of female entrepreneurship for economies at
different level of economic growth (developed and developing countries).
The models dependent variable is self-employment rate of female. Data is
taken from world development indicators. Our explanatory variables include various
personal indicators, macroeconomic variables and labor market indicators. Selection

of our dependent variable is based on the theoretical rationale discussed in the

literature review. Precise definitions and data sources of all variables used are given
in Table 1A in the appendix. Summary statistics of the dependent variable and the
independent variables are presented in Table 2A in the appendix.
The hypothesis we are trying to test is that women entrepreneurship is U shaped in
relation to economic development. Initially at low levels of economic development,
women are working out of necessity and they are mostly self-employed. With
economic growth there is a decline in their participation in labor market due to
sectoral shifts as well as improvement in income per capita. However, when they
work environment is more conducive there is increase in women led businesses but
probably this increase is more likely to be opportunity driven rather than necessity
driven (see Choudhry et al 2010).
The studies that use it(?) find that the coefficient of GDP per capita is negative and
significant, with a positive and significant squared term. However, one interaction
term might not be sufficient to capture the U-shaped relationship between women
entrepreneurship and economic development; instead, it is necessary to test
whether economic development affects women entrepreneurship in combination
with other explanatory variables and perhaps even moderates the effects of those
variables (Pampel and Tanaka 1986). We therefore propose a regression model with
interaction effects for our measure of economic development, as well as the main
determinants of women entrepreneurship.

Empirical Results:
The estimation results are reported in Table 1. The results are based on annual data
over the period 1980-2010, for a large number of countries at different stages of
economic development. The number of countries in different specifications varies
from 63 to 147 depending on data availability for the explanatory variables. The
fixed effects model has been selected on the basis of the Hausman specification
test (Baltagi, 2005). The Hausman test statistic points out that the fixed effects
model should be used rather than the random effects model (reason?)(see Table 1).
To investigate the hypothesis that the country fixed effects are not jointly

significant, we performed an F-test. The low p-value of the F-test statistic suggests
that we must reject this hypothesis (see table 1).
Since we are using time series data, serial correlation could be a potential
issue. We applied panel data autocorrelation tests and the results fail to identify any
serial correlation in our residuals and time series macro variables; we can reject the
null of unit root at 1 percent level of significance. Moreover, we also checked for
possible multicollinearity among our macro variables. 1
In the first model, we introduced child dependency as a measure of family
responsibility as discussed in previous section. Our hypothesis is that high child
dependency rate leads to lower female economic participation and women
entrepreneurship. The coefficient is negative but not statistically significant. The
impact of GDP per capita on women entrepreneurship is negative and significant.
This finding is in consonance with the existing literature (Kuznetz,1966 and
Bregger,1996). Increase in per capita income means high wages which increases
the opportunity cost of self-employment. Another possible explanation for negative
relationship is the wealth effect and substitution effect which increases the
importance of leisure over work. Impact of inflation is negative and significant.
Higher fluctuation in prices leads to inconsistent cost of production which in turn
discourages entrepreneurs and affects them negatively. Female unemployment rate
is another explanatory variable in column 1 of table 1. The impact is negative and
significant which reflects the unfavorable labor market condition for female
entrepreneurs. At macro level, high rate of unemployment can negatively impact
the level of businesses through a decrease in number of business opportunities due
to depressing economic activities. At micro level, there is a possibility that high
unemployment rate leads to high level of women entrepreneurship because
opportunity cost of starting own business is low. But at macro level negative impact
of unemployment rate is stronger than the positive push factor of unemployment
(see Kovalanien et al 2002).
Table 1: Determinants of Women Entrepreneurship
1 VIF value with all macroeconomic variable is 4.71, which reflects that multicollinearity is
not a potential problem among macro variables.

Variables
Child Dependency
GDP per capita
Inflation
Female unemployment rate

M1

M2

M3

M4

-0.028

-0.148***

-0.110***

-0.155***

0.03

0.023

0.028

0.027

-0.000***

-0.000***

-0.000***

0.00

-0.002*

-0.004***

-0.008***

-0.005***

0.001

0.001

0.001

0.001

-0.138***

-0.095***

-0.187***

0.001

0.033

0.041

0.038

0.045
Employment in agriculture

0.544***
0.017

Employment in Industry

-0.485***
0.038

Employment in Services

-0.383***
0.021

Constant

Observations
No of Countries
R-Square

35.442***

28.407***

53.795***

57.466***

1.755

1.339

2.009

1.842

1602

1513

1524

1524

147

139

139

139

0.036

0.451

0.16

0.245

F-Statistic
13.718***
225.172***
52.694***
89.412***
Robust standard errors are reported below the coefficients. *** indicates significance at 1 percent
level, ** indicates significance at 5 percent and * indicates significance at 1 percent level.

We are particularly interested in looking at the impact the employment in different

sectors on women entrepreneurship. We have incorporated employment in
agriculture, services and industrial sector as explanatory variables (see Table 1 from
M2 to M4). We find that high share of employment in agriculture has a positive
implication for women entrepreneurship whereas the impact of services and
industrial sector is negative and significant. The results of all the explanatory
variables carry their expected signs and maintained their statistical significance
which reflects the robustness of our findings.
Moreover, to take into account other social, economic and financial indicators
impact on women entrepreneurship we have incorporated these variables in the
econometric specification (M5-M10 in table 2). To look at the role of financial sector
in bolstering women led businesses we have used banking credit to private sector
as a measure of financial depth. As time series data is not available for this variable,

number of observations decline significantly (see M5 in table 2). We find that impact
is negative and insignificant. Results suggest that impact of openness and financial
depth is negative but statistically insignificant. Urbanization impact is negative and
statistically significant. It indicates that in rural areas there are more opportunities
for women to start small scale businesses and become self -employed.
Female economic participation, another measure of labor market performance
indicates that its impact is positive and statistically significant. It reflects that in
countries where labor market opportunities for female economic participation are
high, the level of women entrepreneurship is also high.
Education is another important potential determinant of women entrepreneurship.
Reliable data on education for a time series model is missing. We used female
literacy rate as a determinant for women education (see M 10 in table 2) we find
that impact is negative and insignificant.
Moreover, we also divided the sample into developed 2 and developing countries.
The estimation results are presented in Table 3. We find that impact of child
dependency is negative and significant in case of developed economies however
this impact is high(more prevalent/pronounced?) in developing economies. This may
be due to the fact that child dependency is quite high in low income and developing
countries as compared to developed economies (see figure A1 in appendix).
Another interesting contrast is the impact of female unemployment rate. High
unemployment rate acts as a push factor for women entrepreneurship in case of
developed economies. However, its impact is negative & significant in developing
economies.
Table 2: Determinants of Women Entrepreneurship-Sensitivity Analysis
Variables

M5

M6

M7

M8

M9

M10

Child Dependency

-0.213***

-0.164***

-0.179***

-0.113***

-0.167***

-0.345***

0.066

0.023

0.026

0.024

0.023

0.086

-0.000***

-0.000***

-0.000***

-0.000***

-0.000***

GDP per capita

2 For the sake of brevity, we will refer to high-income OECD countries and high
income non-OECD countries as developed economies in the rest of the paper,
while other economies will be referred to as developing economies.

Inflation

Female unemployment rate

Employment in Agriculture

Financial Depth

-0.004**

-0.004***

-0.003***

-0.003***

-0.004***

-0.005

0.002

0.001

0.001

0.001

0.001

0.004

-0.230***

-0.077**

-0.091***

-0.090***

-0.093***

0.034

0.058

0.033

0.033

0.032

0.033

0.14

0.776***

0.546***

0.543***

0.523***

0.541***

0.689***

0.061

0.019

0.017

0.018

0.017

0.058

-0.002
0.01

Openness

-0.008
0.006

Urbanization

-0.127***
0.047

Female Labor force Participation Rate

0.144***
0.029

Gross Capital formation

-0.003
0.021

Literacy rate female

-0.222
0.148

Constant

31.862***

29.217***

37.887***

20.241***

29.328***

62.373***

3.171

1.383

3.766

2.121

1.403

15.574

Observations

490

1505

1513

1513

1503

196

No of Countries

77

138

139

139

137

87

R-Square

0.384

0.43

0.454

0.461

0.463

0.649

F-Statistic

42.245***

171.078***

189.708***

194.910***

195.733***

31.712***

Standard errors are reported below the coefficients. *** indicates significance at 1 percent level, ** indicates significance at 5 percent and *
indicates significance at 1 percent level.

Sectoral distribution of employment shows that agricultural and industrial sectors

promote women entrepreneurship however the impact of services sector is negative
and significant (M2 in table 3). In developing countries high share of agricultural
employment promotes female entrepreneurship whereas industry and services role
is negative and significant.
Table 3: Developed and Developing Countries Comparison
Developed Economies

Child Dependency

Developing Economies

M1

M2

M3

M4

M1

M2

M3

M4

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

-0.074**

-0.087***

-0.081***

-0.101***

-0.165***

-0.280***

-0.210***

-0.180***

0.029

0.028

0.025

0.031

0.05

0.043

0.037

0.044

-0.000***

0.000**

-0.000***

-0.001***

-0.000***

-0.000***

-0.001***

Inflation

-0.024***

0.001

0.027***

-0.020***

-0.002

-0.005***

-0.005***

-0.008***

0.006

0.006

0.005

0.006

0.002

0.002

0.001

0.002

Female unemployment
rate

0.121***

0.211***

0.091***

0.158***

-0.460***

-0.260***

-0.288***

-0.464***

0.03

0.029

0.024

0.032

0.081

0.072

0.061

0.072

GDP per capita

Employment in Services

-0.314***

-0.386***

0.026
Employment in
Agriculture

0.03
1.043***

0.516***

0.049

0.024

Employment in
Industrial Sector
Constant

Observations
No of Countries

0.129***

-0.771***

0.032

0.06

14.163***

28.004***

7.065***

7.864***

64.947***

83.989***

45.822***

81.122***

1.446

1.753

1.213

2.14

3.857

3.504

3.015

3.433

751

742

736

742

831

762

757

762

47

47

47

47

99

91

91

91

R-Square

0.269

0.391

0.556

0.276

0.065

0.271

0.468

0.271

F-Statistic

64.399***

88.748***

171.390**
52.522***
12.659***
49.544*** 116.255*** 49.630***
*
Standard errors are reported below the coefficients. *** indicates significance at 1 percent level, ** indicates significance at 5 percent and *
indicates significance at 1 percent level.

Another important factor we took into consideration is the impact of religion on the
women entrepreneurship. We find that impact of religious adherence (Islam) is
negative and significant in both developed and developing economies. Coefficient
value is quite high in case of developing economies. Impact of adherence to
Christianity is negative and significant in developed and positive and significant in
developing countries. Hinduism has shown to promote women entrepreneurship in
developed countries but restricts in developing countries see Table in appendix.
These results are ..
To check whether the relationship between women entrepreneurship and economic
development is U-shaped, we introduced the squared term of GDP per capita as an
explanatory variable. The studies that used it, found that the coefficient of GDP per
capita was negative and significant, with a positive and significant squared term
(see Choudhry and Elhorst, 2010 and Fatima and Sultana, 2009). However, one
interaction term might not be sufficient to capture the U-shaped relationship

between women entrepreneurship and economic development; instead, it is

necessary to test whether economic development affects women entrepreneurship
in combination with other explanatory variables and perhaps even moderates the
effects of those variables (Pampel and Tanaka 1986). We therefore propose a
regression model with interaction effects for our measure of economic development,
as well as the main determinants of women entrepreneurship. We have included the
interaction term of GDP per capita with child dependency, employment in services
and financial depth. The results are presented in Table in appendix
In order to assess the significance of these multiplicative terms, we draw
confidence intervals, for which standard errors can be calculated following the
methodology of Aiken and West (1991).3 On the basis of the empirical results 4, we
consider the marginal impact of the multiplicative term. Figure 1 presents the
marginal effect of various sectors conditional on different time periods 5. The solid
line in each panel of Figure 1 shows the marginal impact of one sector of interest on
women entrepreneurship at different time periods. The 95 % confidence intervals
around the solid line allow us to determine the conditions under which that variable
has a statistically significant effect on labor productivity that is, its effect is
statistically significant positive (or negative) whenever the upper and lower bounds
of the confidence interval are both above (or below) the zero line.
Marginal effects suggest that negative impact of per capita income (GDPC) on
women entrepreneurship will turn to positive if GDPC is more than $100,000. It
displays the regime shift in the impact of GDPC on women entrepreneurship from
negative to positive. It may be explained by the fact that with economic growth
there is expansion in the economy and environment is more conducive for
businesses. The upper right panel in figure 1 shows that in countries where the
GDPC is low, child dependency impact is negative and significant, however, after a
certain level its marginal impact is positive but not statistically significant. The lower
left panel presents the marginal impact of services sector on promotion of women
3 Technical details on calculating marginal effects and confidence intervals can be
found in Brambor et al (2006).
4 Available on request
5 Time period is 1 for1980-85, 2 from 1986-90 and so on.

entrepreneurship. Result suggests that services sectors role shifts from negative to
positive when GDP per capita is $70,000 and more. Its role is negative and
statistically significant at lower level of economic development and positive and
significant at higher level of growth. Similarly financial sectors role is positive in
countries where high level of GDPC but it is not statistically significant.

Marginal Effect of GDPPC

-.0003
-.0002
-.0001 0 .0001.0002

Marginal Effect of YD
-.2
0
.2
.4
.6

Marginal Effect of SEREM

-.5
0
.5
1

Marginal Effect of Fdepth

-.1
0
.1
.2
.3

Figure 1 - Marginal impact of per capita Income, child dependency,

services sector and financial depth on women Entrepreneurship at
different levels of GDP per capita - complete sample

20000 40000 60000 80000 100000 120000

gdpc

20000 40000 60000 80000 100000 120000

gdpc

20000 40000 60000 80000 100000 120000

gdpc

20000 40000 60000 80000 100000 120000

gdpc

This figure shows the impact of income per capita, child dependency, services sector
and financial depth on women entrepreneurship rate at different levels of age
dependency. These figures correspond to our main results as set out in columns 1-4
of Table 4A. The upper panels show the marginal effect of per capita income (GDPC)
and child dependency (YD) and the lower panels show the marginal effect of
employment in services sector (SEREM) and financial depth (Fdepth) at different
levels of Economic Development (GDP per capita) .

Over the period of time, most women engaged in entrepreneurial activities are
driven by either necessity or opportunity. We also included time effects measures
and find that they are statistically significant. To assess the role of different sectors
over the years we introduced the multiplicative term of time and sectoral share of
employment. To investigate whether the impact of sectoral distribution of

employment is also conditional on the time period, we introduced the interaction

term of sectoral employment share with time. The marginal effects are presented in
Figure 2A in appendix.
Conclusion:

The results of our estimation shed light on important factors that affect women
entrepreneurial activity across regions and sectors of employment. GDP per capita
and Inflation have a significantly negative relationship with female entrepreneurship
while the impact of female economic participation is positive and significant. This
finding reiterates the importance of a stable macroeconomic environment for
growth of entrepreneurship. Interestingly, female unemployment rate has a positive
impact on women entrepreneurship in developed countries while in developing
countries the affect is negative. This could be a result of lower levels of investment
capital available to unemployed women in developing countries.
Child dependency has a negative impact on growth of women entrepreneurs in both
developed and developing countries, however, the impact is more pronounced for
women in developing economies. Adherence to religion (Islam and Christianity) is
another factor which affects women entrepreneurial activity negatively, in both
developed and developing countries. This may be attributed to the domesticated
image of women that most religious societies uphold.
Our model also inspected the role of different employment sectors on the growth of
women entrepreneurship in a country. The results suggest that a higher female
employment in agriculture, positively impacts female entrepreneurship in both
developed and developing countries. However, the industrial sector employment
although positively affects WER in developed countries, has an opposite result for
developing countries. High employment in services sector lowers women
entrepreneurial activity in both economies.
Women entrepreneurship is identified as a factor which exhibits great potential to
foster high levels of economic development in a society. Through our specification
model and results, we have tried to present a broader context on the determinants
of women entrepreneurship across different income groups. The empirical
discussion presented could pave way for further research and guide policy
formulation on issues of women entrepreneurial growth.

Appendix:
Table 1A - Description of Data and its Sources
Varia
ble

Variable description

Source

SELFF

Self-employed female(% of
female employed)

World Development Indicators/KILM

FPART

Female labor force

participation rate

Key Indicators of Labor Market

YD

(0-14 years)/ 15-64 years

World Development Indicators

GCF

Gross capital formation is the

sum of fixed gross capital
formation, changes in
inventories, and acquisition
less disposals of valuables

World Development Indicators

INF
OPEN

Consumer prices % annual

Exports and imports (% of
GDP)

World Development Indicators

World Development Indicators

AGRE
M

Employment in agriculture
sector(as % of total
employment)

Key Indicators of Labor Market

UR

Unemployment rate

World Development Indicators/KILM

Table A2: Summary Statistics

Variable

Mean

Std. Dev.

Min

Max

27.21
14443.6
5

22.75

0.00

17792.18

246.67

99.00
127670.6
0

Unemployment Rate Male (%)

8.14

5.86

0.10

37.00

Value added by agriculture sector(% of GDP)

17.51

14.77

0.00

72.03

Value added by industrial sector(% of GDP)

29.17

12.91

3.48

96.74

Value added by services sector(% of GDP)

53.30

14.79

2.43

92.83

23.46

11.18

-2.42

219.07

Inflation

98.00

193.38

0.00

3218.62

Unemployment Rate Female (%)

10.78

8.18

0.10

55.80

Child Dependency

58.95

24.30

15.52

113.31

Openness

83.45

52.51

0.02

531.74

Urbanization

53.20

25.00

4.34

100.00

Financial Depth

37.95

33.92

0.15

312.15

Female labor force Participation Rate

55.17

17.76

9.70

91.90

Self-Employment
GDP per Capita

Gross Capital Formation

Figure 1A - Child dependency and old age dependency by income group

Data Source: World Development Indicators

Table 3A: Effect of Religion on women entrepreneurship

Developed Economies

Developing Economies

Child Dependency

GDP per capita

Inflation

Female unemployment rate

Employment in agriculture

Gross Capital Formation

Islam

M1

M2

M3

M1

M2

M3

b/se

b/se

b/se

b/se

b/se

b/se

-0.189***

-0.212***

-0.207***

-0.290***

-0.301***

-0.279***

0.025

0.025

0.025

0.04

0.04

0.04

-0.000*

-0.000**

-0.000***

-0.000**

0.041***

0.031***

0.036***

-0.006***

-0.006***

-0.005***

0.008

0.008

0.008

0.001

0.001

0.001

0.066***

0.085***

0.078***

-0.206***

-0.222***

-0.216***

0.024

0.023

0.023

0.066

0.066

0.066

1.246***

1.220***

1.227***

0.492***

0.495***

0.497***

0.054

0.054

0.054

0.026

0.025

0.026

0.002

0.002

0.003

-0.012

-0.016*

-0.012

0.005

0.005

0.005

0.009

0.009

0.009

-13.967*

-27.105*

8.11

15.168

Christianity

-3.459**

9.656***

1.462

3.226

Hinduism

46.180*

-1.132

25.438
Constant

50.14

12.572***

16.726***

13.048***

57.932***

48.073***

51.809***

1.639

2.249

1.618

4.897

3.689

3.558

Observations

648

648

648

656

656

656

No of Countries

40

40

40

79

79

79

R-Square

0.687

0.689

0.687

0.473

0.478

0.47

F-Statistic

188.727***

189.923***

188.877***

73.117***

74.671***

72.256***

Standard errors are reported below the coefficients. *** indicates significance at 1 percent level, ** indicates significance at 5
percent and * indicates significance at 1 percent level.

Table 4A: Women Entrepreneurship- Interactive Model

s5

s6

s9

s12

b/se

b/se

b/se

-0.169***

-0.193***

0.214***

0.179**

0.024

0.028

GDP per capita (GDPC)

-0.000***

-0.000***

0.028
0.001***

0.085
0.001***

GDPC*GDP per capita

0.000**

0.000**

0.000***

-0.004***

-0.004***

0
0.005***

0.001

0.001

0.001

-0.119***

-0.112***

-0.072*

0.002
0.491***

0.034

0.034

0.04

0.072

0.536***

0.537***

Child dependency

Inflation

Female unemployment rate

Employment in agriculture

0.018

b/se

0.002

0.018
0.000*

GDPC*child dependency

0
Employment in Services

0.446***

Employment in Services*GDPC

0.025
0.000***

Figure 2A - Marginal impact of Agriculture, Industrial and service

0
sector on Women Entrepreneurship
over the period of time Financial depth
-0.072**
complete sample
0.028

0.000**

Financial depth*GDPC

Constant

Observations
No of Countries
R-Square

31.476**
*
1.871

31.737**
*
1.875

68.541**
*
2.479

43.371**
*
5.347

1513

1513

1524

521

139

139

139

79

0.453

0.455

**

162.927*
**

3
4
5
time 189.175*

0.27

72.654**
*

0.168

12.504**
time
*

Marginal Effect of Serem

-.6 -.5 -.4 -.3 -.2 -.1

F-Statistic

Marginal Effect of Indem

-.7 -.6 -.5 -.4 -.3

Marginal Effect of Agrem

.4
.5
.6
.7

3
time

This figure shows the impact of share of employment by agriculture, industry and
services sector on women entrepreneurship over the period of time. The upper
panels show the marginal effect of Agriculture share (Agrem) and Industry (Indem)
and the lower panel show the marginal effect of services sector (Serem) on women
entrepreneurship over the period of time.