Discrimination as a Barrier to Growth: Experimental Evidence from Ethiopia

Gender discrimination against entrepreneurs, who form the largest sector of the labor force in Sub-Saharan Africa, may drive gender gaps in access to capital and subsequently reduce the performance of female-owned businesses. Observable differences between men and women entrepreneurs explain only a small portion of the “gender profit gap”, suggesting gender discrimination may be an important, yet understudied, factor inhibiting the success of female entrepreneurship.1 This raises concerns about gender equity, but also growth: by misallocating capital, discrimination can reduce the returns to capital and thereby reduce productivity and economic growth. Thus, there may be an opportunity to both increase gender equity and improve efficiency in the allocation of capital.

In our paper, we use a randomized experiment to identify whether Ethiopian financial providers discriminate against female entrepreneurs when evaluating their business’ productivity. To identify the extent and implications of gender discrimination in capital access, we implement a business plan competition in which entrepreneurs are evaluated by a representative panel of 200 financial providers. To estimate discrimination, we randomly assign the entrepreneur to be presented as female or male. Our paper will answer whether financial providers discriminate against female entrepreneurs, the largest segment of the labor force, reducing gender equity?