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PRO-POOR ECONOMIC GROWTH RESEARCH STUDIES

CONTRACT NO. PCE-I-02-00-00015-00

Pro-Poor Economic Growth Issues


Papers—Volume II

Conflict, Poverty, Inequality, and Economic Growth


Gender and Pro-Poor Growth
Pro-Poor Growth and the Environment
Deliverable 1: Research and Results Dissemination Plan and Time Line
Deliverable 2: Website
Deliverable 3: Pro-Poor Economic Growth: A Review of Recent Literature
Deliverable 4: Poverty-Problem Countries Typologies
Deliverable 5: Selection Criteria for Pro-Poor Economic Growth Policies
Deliverable 6: Preliminary Policy Recommendations
Deliverable 7: Poverty Reduction Strategy Papers: A Preliminary Analysis of the Process and Outputs
Deliverable 8: Meeting: Presentation of Phase One Results
Deliverable 9: Workshop: Phase One Results, Preliminary Findings, and Planned Research
Deliverable 10: Poverty, Economic Growth, and Development Policies and Activities: A Case Study of:

ƒ Brazil
ƒ Egypt
ƒ Indonesia
ƒ Peru
ƒ Uganda
ƒ Ukraine
ƒ Zambia
ƒ India or Sri Lanka

Deliverable 11: Pro-Poor (Sector) Policies, Reforms and Activities

ƒ Agriculture
ƒ Education
ƒ Finance

Deliverable 12: Pro-Poor Economic Growth Policies, Reforms, and Activities


Deliverable 13: Workshop: Research Findings and Implications for USAID Programming
Deliverable 14: Pro-Poor Economic Growth and Poverty Reducing Policies, Reforms, and Activities
(Guidance Manual)
Deliverable 15: Workshop: Final Findings and Presentation of Guidance Manual
Deliverable 16: Dissemination of Findings of Guidance Manual
Deliverable 17: Final Project Report
Deliverable 18: Issues Papers on:

VOLUME I:
ƒ Health
ƒ HIV/AIDS
ƒ Privatization

VOLUME II:
ƒ Conflict and Post-Conflict Recovery
ƒ The Environment
ƒ Gender
Pro-Poor Economic Growth Issues
Papers—Volume II

Conflict, Poverty, Inequality, and Economic Growth


by
David Pottebaum

Gender and Pro-Poor Growth


by
Catherine Dolan

Pro-Poor Growth and the Environment


by
Robert Repetto and Federico S. Fische

The Pro-Poor Economic Growth Research Studies and Guidance Manual Activity, implemented by
Development Alternatives, Inc. and Boston Institute for Developing Economies, is funded by the
Bureau for Economic Growth, Agriculture, and Trade, U.S. Agency for International Development,
under the terms of Contract No. PCE-I-02-00-00015-00, Task Order #2. This document represents
Deliverable #18 under this task order.
Conflict, Poverty, Inequality,
and Economic Growth
by
David Pottebaum
i

TABLE OF CONTENTS

CHAPTER ONE
INTRODUCTION 1

CHAPTER TWO
CONFLICT AND SOCIOECONOMIC DATA FROM CRISIS-AFFECTED
COUNTRIES—CAVEAT EMPTOR 3

CHAPTER THREE
RELATIONSHIPS BETWEEN CONFLICT AND POVERTY, INEQUALITY,
AND ECONOMIC GROWTH—WHAT CAN WE CONCLUDE? 5
ECONOMIC CONSEQUENCES OF CONFLICT ............................................................................5
ECONOMIC CAUSES OF CONFLICT ..........................................................................................8

CHAPTER FOUR
ECONOMIC GROWTH POLICIES AND REDUCING TENSION
IN CRISIS-PRONE COUNTRIES 13

CHAPTER FIVE
BUILDING PEACE, REDUCING POVERTY, AND PROMOTING IN
GROWTH POST-CONFLICT COUNTRIES 15

CHAPTER SIX
CONCLUSION 19

CHAPTER SEVEN
REFERENCES CITED 21

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LIST OF TABLES AND FIGURES

Table

1 Conflict and the Least Developed Countries, 1989-2002........................................2

Figure

1 Change in Real GDP Per Capita from Beginning to End of Conflict......................6

2 Income and Horizontal Inequality .........................................................................11

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CHAPTER ONE
INTRODUCTION

Violent crises and civil wars inflict serious human, social, and economic damage on the countries
involved. Undeniably, the most damaging impact of war is death. War claimed more than five
percent of the total populations of Angola, Mozambique, Afghanistan, and Liberia in the 1980s
and 1990s. In the 1970s, Cambodia lost a staggering seventeen percent of its population to war.
In economic terms, the loss of precious human capital is a major obstacle to development in
crisis- and war-affected countries and the effect of this loss can last for years. Indeed, more than
half of all low-income countries have experienced major violent conflict in the recent past (see
Table 1). Another tragic humanitarian consequence of war is the creation of refugees and
internally displaced populations. In 2002, the world’s total refugee population was nearly 15
million; more than 22 million people became refugees or were internally displaced.

In recent years, crisis-affected and war-torn states have received massive assistance for both
relief and reconstruction. Several international development organizations have established
specialized units to address the specific concerns of development in crisis- and war-torn
societies; examples include the United Nations Development Programme Bureau for Crisis
Prevention and Recovery, the World Bank Conflict Prevention and Reconstruction Unit, and the
USAID Office of Conflict Management and Mitigation. The growth in assistance to these
countries has increased interest in studying the distinctive characteristics of modern conflict and
the post-conflict environment as well as in developing strategies for the reconstruction and
development of crisis-affected and post-conflict societies. As these trends in research yield
findings, analysts and policy makers are coming to understand more about how modern conflict
affects the economy and social fabric of these countries and, conversely, how economic policies
and outcomes may increase tension and the risk of violent conflict.

There is a growing consensus that economic decline and poverty, as well as competition over
scarce resources, are among the chief socioeconomic causes of war. Policy makers and planners
must understand the relationships between poverty and violent conflict and must recognize that
development assistance can cause harm as well as good. Properly designed poverty reduction
programs can facilitate the transition from war to peace and accelerate the rebuilding of society.
Poorly designed programs, in contrast, can destabilize fragile societies and exacerbate conditions
among the poor.

What does recent research and practical experience in crisis-affected and post-conflict countries
teach us about designing and implementing poverty reduction policies and programs? Are new
principles required for these countries?

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Table 1: Conflict and the Least Developed Countries, 1989-2002


(listed from least developed; countries that experienced major conflict in bold)

Human Development Index a Weighted Index of Social


(9 of 15; 60%) Progress b
(12 of 15; 80%)
Sierra Leone Angola
Niger Afghanistan
Burundi Somalia
Mozambique Sierra Leone
Burkina Faso Liberia
Ethiopia Mozambique
Guinea-Bissau Chad
Chad Ethiopia
Central African Rep. Niger
Mali Eritrea
Malawi Burkina Faso
Rwanda Guinea-Bissau
Angola Uganda
Gambia Rwanda
Guinea Guinea

Sources: a = (UNDP 2002); b = (Estes 1998)

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CHAPTER TWO
CONFLICT AND SOCIOECONOMIC DATA FROM CRISIS-AFFECTED
COUNTRIES—CAVEAT EMPTOR

Quantitative research into the causes and consequences of conflict has increased dramatically in
recent years. Although researchers have made some progress, conflict data remain a major
challenge. Historical data on conflict are notoriously inaccurate and for many conflicts simply
unavailable. As a result, and despite consensus regarding definitions for war, characterizing
conflict events is difficult, particularly for those that occurred many years ago. Inaccurate and
incomplete conflict data and the range of research topics that drove construction methods for
each set of data have led to disagreements among researchers over the coding of conflict events.
For example, battle deaths are used to define conflicts but exact figures on such fatalities are
very difficult to obtain. The result is difficulty in defining (1) whether or not an event is a “war”
and (2) the dimensions of the conflict, in such aspects as mortality, geographic area, and number
of combatants.

Andrew Mack (2002, p. 4), in his useful review of the practical challenges facing academic
research on conflict, points out that the absence of official statistics on armed conflict means that
“policy makers not only have no guidance as to what data source to use, they often have little
idea of trends in armed conflict either.”

Empirical studies on the causes and consequences of conflict also face problems associated with
national-level social and economic data from crisis- and conflict-affected countries. Incomplete
and unreliable data and the degree of comparability of data across countries are major concerns.
Another issue—of particular importance for conflict research—is exclusion: what and who is
omitted from national accounts—for example, that of school enrollment?

Most analysts and census practitioners accept that national statistics do not account adequately
for informal sectors and activities. In Cambodia in the 1960s, for example, temple schools played
an important role as centers for education in many rural areas. It is unlikely that youth attending
these relatively informal schools were included as “enrolled” in national school enrollment data.
When war broke out, and as it intensified, these temple schools probably continued to operate
longer than official government schools. First, these schools were in the center of the village—a
more protected location compared with the usual location of government schools at the
periphery. Second, the Buddhist monk teachers—typically born in or near the villages in which
they lived and worked—were more likely to stay in the villages than flee to the capital, as did
government-employed educators. As a result, in countries where the informal sector plays an
important role in education and health, national statistics will likely underestimate levels of
social welfare, particularly in times of war.

Furthermore, it is also widely acknowledged that national data collection efforts typically miss
important population segments, including the poor and ethnic minorities. Reasons for this may
be intentional (for example, to downplay the size of the group for political or budgetary reasons)
or unintentional (for example, because census-taking measures are poor and the budget

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insufficient to reach isolated populations). In part because public social welfare systems tend to
underserve the poor and ethnic minorities, the well-being of these populations is typically less
than that of the general population. As a result, depending on the size of the excluded population,
national statistics are likely to overestimate the actual level of social welfare. The degree of
overestimation will probably be greater in war-affected countries, where divisions based on
poverty or ethnicity are often root causes of conflict.

The large movements of population associated with conflict pose a special problem for data
collection and national statistics in war-affected countries. By way of example, consider the case
of Cambodia in the late 1960s and early 1970s. During this period, intense war in the countryside
drove many educators and medical practitioners away from their villages of work and into the
relative safety of the capital. According to national statistics, access to physicians and teacher-to-
student ratios did not change. In terms of these indicators, the impact of war on Cambodia was
neutral. In reality, however, access to the services of these professionals fell dramatically in the
areas that they left behind. National statistics, in this case, underestimate the impact of war on
Cambodia, particularly in areas directly affected by fighting.

In summary, empirical analyses of conflict face two problems. First, weaknesses associated with
conflict data do not always allow accurate categorization of conflict events. Analysts can
construct typologies but may encounter problems when slotting countries into various categories.
Second, national-level data from crisis- and war-affected countries are often incomplete and
inaccurate. We must therefore exercise caution when interpreting the results of empirical
analyses that rely on national statistics and basing policy prescriptions on them. We must
continually question whether our results truly reflect “reality.”

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CHAPTER THREE
RELATIONSHIPS BETWEEN CONFLICT AND POVERTY, INEQUALITY, AND
ECONOMIC GROWTH—WHAT CAN WE CONCLUDE?

There is a growing body of empirical research investigating links between violent conflict and
poverty, inequality, and economic growth. While there is consensus among practitioners and
researchers on the economic consequences of conflict, there is less agreement regarding
economic causes of conflict.

ECONOMIC CONSEQUENCES OF CONFLICT

The high cost of war in terms of human suffering and socioeconomic decline is well known, and
conflict is commonly cited as an important cause of poverty in the countries involved (UNCTAD
1997, 136; World Bank 2000, 50; Boutros-Ghali 1992). Less well understood is: (1) how and
why the magnitude of these costs varies across states, and (2) the channels through which
conflict affects poverty and economic growth. These are some of the key issues the economic
literature examines. We turn to them now.

Many case studies describe the impact of conflict at a variety of levels in the countries involved
(see for example Cranna 1994, Green and Ahmed 1999, Pottebaum 2002, and Utting 1994). An
insightful analysis by Stewart (1993) pulls together the experience of several war-affected
countries and describes the economic costs of war and factors that influence their magnitude.
Stewart explains that the costs of war appear at three levels:

ƒ Macro, including the destruction of infrastructure, disruption of markets, and reduced


manpower;

ƒ Meso, including influences on social sectors like the level of public resources for health and
education facilities, or food subsidies; and

ƒ Micro or household, which is the “recipient of all the negative effects arising at the macro and
meso levels” and includes falling food entitlements, disintegration of the household,
worsening health and education of individuals, and psychological shock as a result of the
many traumatic events of war (p. 362).

The costs can be—and often are—immediate and dramatic. They can continue to accrue long
after the fighting has stopped. The sum effect of this on the countries involved is development in
reverse (World Bank 2003). Consider the impact of war on economic production. There is
damage or destruction to critical physical infrastructure—power distribution systems, transport
networks, and so on. War disrupts input and output markets. Because levels of investment
characteristically decline in periods of war, the opportunity for economic expansion diminishes,
leaving infrastructure in disrepair. Industrial and agricultural outputs tend to decline. Gross
domestic product follows suit (Stewart et al. 1997). In a survey of 78 conflicts between 1950 and

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2000, Pottebaum (2002) found that real GDP per capita at the end of conflict in Cambodia,
Liberia, and Lebanon was more than 50 percent less than at the beginning. Real GDP per capita
declined annually by about 13 percent during the conflict in Rwanda, and by more than 5 percent
in Sierra Leone and Haiti (see Figure 1).

Figure 1: Change in Real GDP Per Capita From Beginning to End of Conflict

-70%
Total Change
-60% Average Annual Change

-50%

-40%

-30%

-20%

-10%

0%
Cambodia Lebanon Liberia Nicaragua Haiti El Salvador

As these figures indicate, the magnitude of the costs of conflict will vary from country to country
depending upon a number of factors, including:

ƒ Initial conditions of vulnerability, trading relations, and economic and social structure;
ƒ Government and quasi-government strength and actions during war;
ƒ The magnitude, geographic spread, and duration of the war; and
ƒ International reaction to the conflict (Stewart 1993; Stewart, Humphreys, and Lea 1997).

As mentioned earlier, Stewart states that initial vulnerability and socioeconomic structure
influence the effects of war. She also seems to suggest that the effects might be less in wealthier
countries, particularly if the government has designed policies and actions to mitigate them. In
contrast, an analysis of cross-national data from 102 countries by Pottebaum and Kanbur (2001)
finds evidence that, although civil war affects adversely the performance of economic and social
indicators in general, poorer countries lose less, in absolute and relative terms, than richer
countries. They argue that the explanation may lie in the extent to which richer countries have
better social (and economic) indicators because of more public goods, and greater adaptation of
economic and social mechanisms to the greater abundance of public goods, such as physical
infrastructure. Civil war destroys public goods and therefore damages disproportionately the
countries most dependent on them (Kanbur and Pottebaum 2002). Pottebaum and Kanbur
caution that their results should not be read as implying that poorer countries need less support to

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avoid civil war and to cope with its aftermath. Although their losses are less, they start from a
lower base; so even small declines affect human well-being severely (Pottebaum and Kanbur
2001).

Pottebaum and Kanbur’s (2001) framework sees social and economic wealth as intricately bound
to the supply and maintenance of public goods. This in turn makes wealthier countries more
vulnerable to their destruction, inevitable in civil war. This framework has an immediate
implication: when civil war ends, social and economic indicators rebound faster in poorer
countries, which are less dependent upon public goods. Wealthier countries will stay mired at
disproportionately low standards of living, given a common rate of reconstruction of public
goods, since their production and distribution structures had adjusted to a (high) pre-civil war
level of public goods. Their econometric analysis bears this out: at least in the short run, the
burden of a history of war will lie heavier on richer than on poorer countries (pp. 7, 11).

The World Bank’s Economics of Civil War, Crime, and Violence program, lead by Paul Collier,
has been the source of some innovative research on the economic consequences of civil wars.
Like other researchers, Collier (1999a) argues that war damages an economy through the
destruction of resources, the disruption of social and economic order, and the diversion of public
expenditure from production-enhancing activities. In addition, war affects an economy adversely
through reduced saving, which Collier relates to the destruction of the capital stock, and through
portfolio substitution as people shift assets (human, as well as physical and capital) out of the
country (p. 169). Collier investigates the interplay between war and portfolio substitution, and
describes the effect of war on growth in gross domestic product in war-affected countries. His
analysis of cross-national data shows that during civil war annual gross domestic product growth
is 2.2 percent less than would have been the case in the absence of conflict. This implies that a
15-year civil war would reduce per capita gross domestic product by approximately 30 percent
(pp. 175-176).

Collier also investigates the effects of civil war on the composition of gross domestic product.
He notes that sectors intensive in capital and transactions, and those which supply capital and
transactions, contract more rapidly during war than does gross domestic product as a whole. On
the other hand, sectors such as subsistence agriculture expand relative to gross domestic product
during war. Empirical evidence suggests that war-vulnerable activities (such as construction and
transport) experience rapid growth after a sufficiently long war. Finally, Collier concludes that
peace does not necessarily produce a dividend: a civil war lasting only one year was found
during the first five years of peace to cause a loss of growth of 2.1 percent per year. This decline,
Collier points out, is not significantly different from losses from continued fighting (p. 181).1 He
argues that this is a result of “war overhang”: following short wars capital continues to flee the
country because of a perceived risk of return to war, since short wars might be seen as
inconclusive. The end of long wars (which might end more decisively) can, however, boost
economic growth—that is, produce a peace dividend.

1
This finding does not imply that there is no economic benefit to stopping a short war. On the contrary and in
general, the longer the war, the greater are the cumulative economic costs. An economic boom might follow a
longer war but will begin from a lower base.

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Recent analysis of country experience by Goodhand (2003) sheds some light on the linkages
between war and chronic poverty. He argues that a long-term conflict, particularly where the
state disintegrates and warlords systematically and deliberately violate individual and group
rights, is likely to be a “driver” and “maintainer” of chronic poverty (p. 631). Goodhand notes
that conflict can lead to an unrecoverable collapse in livelihood as poor families consume their
assets and retreat to subsistence production. Disruptions of markets, state services, and
community cooperation are particularly harmful to families on the margins of the economy (p.
632). He cautions that the “processes which keep households in chronic poverty are unlikely to
suddenly change in the event of a peace settlement” (p. 633). Prominent examples of countries
that have experienced particularly widespread and violent conflict resulting in significant
increases in chronic poverty include Sierra Leone in the 1990s—now the world’s poorest country
by almost any measure—and Cambodia in the late 1970s, where perhaps for the first time in
more than 1,000 years rice disappeared from the diet of the people in much of the countryside
(Chandler 2000, p. 221).

Certain groups are particularly vulnerable to becoming chronically poor as a result of violent
conflict. The elderly and disabled, for example, are less mobile and more reliant on family
networks and government services that are commonly broken by conflicts. Sexual violence and
rape, common weapons of terror in modern conflicts, have severe implications on the health and
economic situation of women. Female-headed households, common in conflict-affected
societies, are vulnerable—particularly in rural areas— to becoming chronically poor. Displaced
persons are vulnerable to health problems and they lack legal protection. Their presence can also
lower labor wage rates, threatening the livelihoods of settled populations in the same locale
(Goodhand 2003).

ECONOMIC CAUSES OF CONFLICT

No one contests that war can cause and deepen poverty. The reverse relationship—that poverty
or inequality cause conflict—is more contentious. Researchers and practitioners agree that a
number of factors must converge to cause violent conflicts. Interactions among poverty,
inequality, and economic stagnation are important, as are other variables such as ethnic
composition, political decay, and resource base (see, for example, Humphreys 2002 and Collier
2000 for a discussion of these factors).

Increasingly, researchers see poverty as a factor that can fuel grievances and help ignite conflict.
The poor and marginalized form a pool of recruits for rebel movements, as seen in places like
Sierra Leone, Sri Lanka, and Cambodia. Goodhand argues that many current conflicts originated
from and are fought out in regions whose communities have limited voice and persistent poverty
(2003, p. 637).

That poverty is a determinant of conflict is among the findings of Collier and Hoeffler (2002a).
They use data from 161 countries and 78 civil wars over the period 1960-99 to investigate two
alternative hypotheses: (1) that “grievances”—inequality, political oppression, and ethnic and
religious divisions—cause civil wars, and (2) that “greed” or sources of finance for conflict—
income from natural exploitation, diaspora, and hostile governments—largely cause conflicts.
There is little statistical evidence to support the grievance model; their greed model provides

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more explanatory power. The authors conclude that a combination of the two models is most
useful in determining the risk of conflict, and argue that:

ƒ The level and growth of income are significant factors, with low income (interpreted as the
opportunity cost of rebellion) and slow growth increasing the risk of conflict;

ƒ Ethnic dominance (where the majority group constitutes 45-90 percent of the population)
moderately increases conflict risk (conversely, greater fractionalization reduces risk);

ƒ An abundance of natural resources increases conflict risk but this relationship is non-linear—
countries heavily dependent on income from natural resources face relatively lower risk;

ƒ Large diasporas abroad increases conflict risk;

ƒ A history of recent conflict increases the likelihood of recurrent conflict; and finally

ƒ Mountainous terrain and a widely dispersed population are moderately significant risk factors.

Importantly, Collier and Hoeffler find that political rights and exclusion have no effect on
conflict risk. Although open democratic societies tend on average to be less affected by conflict,
the level of political freedom (as proxied by the Polity III measure of autocracy and the Freedom
House measure of political openness) does not appear to affect conflict risk.

That conflict causes poverty and that poverty increases the risk of conflict suggests that countries
can fall into a “poverty-conflict trap.” Blomberg, Hess, and Thacker (2000) investigate the
existence of such a trap in their analysis of data from 150 countries from 1950-1988. Their
analysis suggests no evidence of a general poverty-conflict trap. While conflicts have dire
economic consequences and foster an environment conducive to conflict, only countries “with
initial low levels of broad capital formation (indicative of a poorer environment for promoting
capital formation) are likely to be stuck in this cycle” (p. 26).

A growing number of practitioners and researchers argue that inequality is among the most
important causes of violent conflict.2 Alesina and Perotti (1996) performed cross-sectional
regressions using a sample of 71 countries for the period 1960-1985 to explore the link between
socioeconomic inequality and violent conflict. They find that inequality, entered into their
regressions using income shares of the five quintiles of population, leads to an unstable
sociopolitical environment—and fuels social discontent—which is conducive to violent conflict.
Boswell and Dixon (1990) also examine the relationship between income inequality and violent
conflict. Performing cross-sectional analysis of data from 63 countries, they find that low growth
rates and high levels of income inequality are central causes of violent conflict and that income
inequality affects violent conflict risk directly.

Research by Nafziger and Auvinen (2002) also concludes that inequality is an important factor.
Using Gini coefficients, they find that income inequality contributes to humanitarian

2
See Lichbach (1989) for a comprehensive review of early studies of this issue.

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emergencies. They argue that high income concentration increases the perception of relative
deprivation by affected segments of society and thereby increases the risk of political
disintegration. Policies that lead to inequality—for example, land distribution, taxation, public
expenditures—can “exacerbate ethnic and regional competition and conflict” (2002, p. 156).
Nafziger and Auvinen also argue that high inequality is particularly volatile when the “less
advantaged can identify the perpetuators of their poverty and suffering,” as was the case in
Nigeria, South Africa, and Chiapas, Mexico (p. 56).

In contrast, recent World Bank research argues that inequality is not an important risk factor for
conflict. Collier and Hoeffler (2002a), in the study discussed earlier in this section, entered data
on income inequality (Gini coefficient and income shares of top and bottom quintiles) and asset
inequality (land Gini) into their regressions and found neither measure to be significant.
Alternative models produced similar results. Collier concludes that unequal societies “are not
more prone to conflict” (2000, p. 7).

What drives this difference of opinion on the importance of inequality? Both Collier and
Hoeffler (2002a) and Nafziger and Auvinen (2002) report using data on Gini coefficients from
Deininger and Squire (1996, 1998). It is not clear whether these studies entered the Gini
coefficient into the regressions in the same way. One difference in data, and possibly the source
of differences in results, is that Nafziger and Auvinen include deaths from state violence as a part
of humanitarian emergencies, thereby providing a broader focus than Collier and Hoeffler. Lack
of data from affected countries is another potential reason for different results.

While this debate continues, other researchers and practitioners argue that it is not individual
inequality, as measured by the Gini coefficient, that matters. These analysts argue that what is
important is horizontal inequality between geographic regions or ethnic or religious groups
(Stewart 2000, Gurr 1993). In an analysis of the sources of conflict, Stewart (2000) argues that
civil wars occur when groups mobilize against each other and that such mobilization is most
effective when groups are economically and politically differentiated—that is, where horizontal
inequality exists (see Figure 2).

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Figure 2. Income and Horizontal Inequality


(adapted from Humphreys 2002, p. 3)

Figure 2a.
Incomes in a country with a poor north (solid) and rich south
(hatch).
Low overall income inequality but high horizontal inequality.

30%
Share of Population

20%

10%

0%
Very Poor Poor Rich Very Rich
Income

Figure 2b.
Country with equal average incomes in north (solid) and south (hatch).
High overall income inequality but low horizontal inequality.

30%
Share of Population

20%

10%

0%
Very Poor Poor Rich Very Rich
Income

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Despite some disagreement about whether inequality causes conflict, there is growing consensus
that the risk of violent conflict increases considerably when inequality and poverty co-exist with
stagnant or declining economies (Nafziger and Auvinen 2002; Murdoch and Sandler 2001).
Collier and Hoeffler (2002a) estimate that, for a given country, every one percent drop in annual
growth increases the risk of conflict by one percent.3 The relationship between stagnant and
declining economies and conflict is clear: economic decline limits income-generating
opportunities and drives more people into poverty. It implies reduced government revenue and
less ability to provide services to the public. Economic collapse that exacerbates unequal
distribution of wealth and assets among groups can fuel grievances and increase tensions among
these groups. Economic decline can also provide an incentive for the unemployed and
marginalized—particularly youths—to join rebel forces for financial gain.

3
For example, the average country in Collier and Hoeffler’s data set—that is, a country all of whose characteristics
were at the mean of their sample—had a risk of conflict of about 11.5 percent in any given period. If economic
growth increased to 2.63 percent from the mean of 1.62 percent, then the risk of conflict would fall to 10.4
percent. The risk of conflict is greater, on the other hand, for a society whose economy is in decline: if the
average country’s economy is declining by 2 percent annually, then its risk of conflict increases to 15 percent—
more than 30 percent above the risk facing the average country.

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CHAPTER FOUR
ECONOMIC GROWTH POLICIES AND REDUCING TENSION
4
IN CRISIS-PRONE COUNTRIES

The relationship of poverty, inequality, and economic growth with violent conflict has direct
implications for policy. Poor economic performance increases poverty and reduces government
legitimacy and ability to provide services. Inequality among groups also tends to worsen in poor
economic environments and during violent conflict. Stagnant growth and increasing poverty and
inequality can increase the risk of violent conflict. In countries prone to violence, policies must
promote equitable growth and address inequalities among groups. While there are no express
paths to reducing poverty, the experiences of countries like Korea and Taiwan show that incomes
can rise dramatically within a generation. In the context of crisis-prone countries, Uganda
provides evidence that appropriate policies and quick government (and international community)
action can lead to rapid improvement in human welfare even in environments characterized by
tension and mistrust (Collier 1999b).

While seemingly an obvious goal,


governments in the countries involved Evidence suggests that major civil wars
are associated with markedly worse performance in
typically will not see poverty-reducing economic growth, food production per capita
economic growth as desirable or in their and human indicators …
best interests. Building peace and Hence any comprehensive strategy to tackle poverty
lowering the risk of conflict are rarely must give the prevention of conflict a central place.
first priorities of leaders in these countries
(Stewart 2000, p. 2)
(nor, in some cases, of the international
community). The interests and policies of
governing elites are powerful forces
against change and often a cause of violence. Introducing policy change in these environments is
not an easy or straightforward task.

To ensure that interventions reduce the risk of violence, several key principles must guide
economic policy making in crisis-prone countries. First, policy makers must recognize that
conflict is complex and can come about when causes at a variety of levels meet and reinforce one
another (see Box 1). Interventions, therefore, cannot focus on a single cause or level. Policy
makers must seek solutions for each underlying cause at each particular level. They must
encourage broad and innovative approaches.

Second, economic policy must concomitantly promote poverty-reducing growth and address
group inequalities (relative and absolute deprivation and poverty among ethic or religious
groups) and incentives to violence (Stewart 2000). Raising incomes and expanding economic
opportunities will, for example, make it increasingly difficult for rebel leaders to recruit foot
soldiers for their cause. Focusing education and adult training on skills required for available

4
A note on terminology: Crisis-prone as used in this paper refers to countries that face a high risk of—but have not
yet experienced—violent conflict. Post-conflict, or countries emerging from conflict, discussed in the next
section, implies countries that have just experienced war.

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jobs builds a foundation for growth and builds the constructive—rather than destructive—
potential of a population.

Policies like these may be effective in promoting Box 1. Consequences and Causes—
growth and reducing group inequality but will likely Growing Consensus
fall short of reducing incentives for leaders to mobilize
ƒ Poverty makes civil wars more likely; civil
recruits and resort to violence. To achieve this, wars in turn worsen poverty. The
government leaders might offer conflict entrepreneurs relationships are stronger for very poor
opportunities to participate directly in government by countries than for developing countries
generally.
offering them government positions. Governments ƒ Countries that rely heavily on primary
might also initiate works schemes that directly employ commodities are more vulnerable to
and offer social status to local leaders and their conflict.
ƒ Countries with severe inequality between
followers. ethnic or regional groups are more
vulnerable.
Third, policies should be formulated and implemented ƒ Domestic investment collapses during
conflicts; it does not recover until long
with the close participation of marginalized groups and after they end.
provide quick and measurable results. In tension-laden ƒ Health infrastructure is especially hard
societies, it is particularly important for the government hit; the damages endure well after
conflicts end.
to foster an environment of trust, cooperation, and
ƒ Economic sectors that depend on capital
mutual respect between it and various groups in and high levels of internal trade (for
society. Quick action and measurable impact send example, construction, finance,
potential rebels a strong signal of the sincerity of the manufacturing) are likely to be hit
hardest.
government. ƒ Wars last longer if rebels finance
themselves using illegal commodities.
More generally, governments should formulate policies ƒ Wars last longer in poorer countries.
ƒ Aid is especially effective in post-conflict
that restructure their economies in a way that increases situations.
the participation and productivity of the poor and of
Source: Humphreys (2002, p. 19)
disenfranchised groups. At the same time, they should
improve their capacity to deliver quality services,
including, most importantly, education and health services, to remote areas where marginalized
groups tend to reside.

Governments should also strengthen their legal systems—particularly mechanisms that protect
important assets of the poor, like land and housing—and ensure that they do not deny justice to
the poor or certain groups in society. Researchers have not gathered empirical evidence to test
the efficacy of such programs in crisis-prone countries, but field experience suggests that
providing credible legal guarantees to marginalized groups can reduce the risk of conflict
substantially (Collier 2000). At the same time, governments should also ensure accountability of
the state security apparatus—the military and the police. These actions will increase the
legitimacy of the state and address many sources of underlying tension.

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CHAPTER FIVE
BUILDING PEACE, REDUCING POVERTY, AND PROMOTING
5
GROWTH POST-CONFLICT COUNTRIES

Country-level experience and World Bank research indicates that countries emerging from
violent conflict face considerable risk of falling back into conflict (Collier 2000). Hence, policies
and interventions appropriate for crisis-affected countries are also useful in countries emerging
from conflict. However, the implications of conflict situations—particularly prolonged and
intense conflict—indicate that policy packages appropriate for crisis-prone countries will not be
sufficient for countries emerging for conflict. The consequences of conflict and the increased risk
of recurrent violence imply the need for somewhat different policy prescriptions and actions.
Perhaps most important, countries must rebuild trust, confidence, and cooperation between the
state and the public, and among various groups in society; these are the pillars upon which to
formulate and implement government policies and programs.

Violent conflict can wipe out roads and bridges, and school and clinics virtually overnight. After
war, it takes time and a great deal of money to reconstruct destroyed infrastructure. It takes
longer still to restore the levels of confidence, cooperation, and trust that facilitated the
development and accumulation of these public goods in the first place. A particularly serious
problem facing war-torn societies is the deterioration of public confidence in national
government. After war, people typically look upon the state with suspicion and mistrust. The
state must repair this negative image for it to resume responsibility for such things as securing
the rule of law and protecting common rebuilding and development objectives. Rebuilding after
war, therefore, implies a focus on mending torn relations between the state and the public.

In the poorest countries the public typically is less reliant on government programs and
interventions in daily life. In these countries loss of public confidence and faith in government
during war is a less important issue. As a result, in the poorest countries reconstruction at the
national level implies building faith and trust between the government and the people.

Whether mending or building relations between the people and government, it is important to
recognize that the state plays a crucial role in post-war rebuilding and reconciliation. Only the
state can take on certain roles. These include restoring security, regulating economic activity, and
establishing development priorities and strategies that harmonize local regional and national
interests. In fulfilling its responsibilities, the government can facilitate the rebuilding process and
enhance the prospects for future economic and social development.

Diminished trust and confidence among individuals and groups—additional casualties of war—
are also difficult to mend. Particularly in poorer countries, rebuilding relations at the community

5
Except where indicated otherwise, this section draws heavily from Pottebaum (2002). In his study of the social
and economic impact of civil war, Pottebaum conducted an empirical analysis of data from 45 civil wars that
occurred between 1960 and 1999. He also conducted a case study of changes in social and economic welfare in
Cambodia between 1954 and 2000, comparing Cambodia’s experience with that of war-torn societies in Africa
and Latin America and relatively stable societies in S.E. Asia during the same period.

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level is perhaps the most important aspect of the peace-building process. Trust and cooperation
among individuals and groups at the local level facilitated the development of important social
and economic structures before the war. These structures provided stability and guidance to local
people in their everyday lives. It is crucial that trust be restored and cooperation encouraged
among individuals and groups so that community economic and social structures can once again
become operational. Because community support is necessary for survival in poor regions, it is
imperative that reconciliation at the local level be given high priority in the aftermath of war.

Keeping in mind the need to mend torn relations and build trust and confidence between the
government and the public, and among various groups in society, what policy priorities are
particularly important during the post-war period?

Analysis of data from 27 countries emerging from conflict in the 1990s by Collier and Hoeffler
(2002b) suggests that, given the objective of promoting growth, policies for social inclusion
(poverty monitoring and analysis, pro-poor targeting and programs, and safety nets) are more
important than structural policies. In turn, structural policies are more important than macro
policies in post-conflict situations
as compared with other contexts
(they find governance to be Programs commonly dedicate too few resources to
monitoring quality in war and conflict situations
approximately as important in and base their assessments on hope and assumption
post-conflict as in other societies; rather than reality.
p. 10, 12).6 The authors caution Monitoring and evaluation must answer questions regarding
that their results do not imply that not only who is receiving
macroeconomic policies do not and how they are using program resources,
but, more important, whether program activities are increasing
matter; the evidence simply or decreasing the risk of renewed conflict.
suggests that it is more desirable
for social policies to improve
quickly.

The experience of countries emerging from conflict confirms the importance of policies that
promote social inclusion. As Uganda emerged from conflict in 1986, it faced a number of
significant challenges. The most important of these was to lower the risk of continued conflict
and reduce poverty, particularly among marginalized groups of society that resided in the border
regions of the country. The government was largely successful in reducing the risk of conflict
and promoting equitable growth for several reasons, including the quick initiation of poverty
reduction programs which attempted to targeted the conflict-prone north (nonetheless, poverty
was reduced less in the north than in other areas of the country), and transitional financial and
material assistance provided to demobilized soldiers. At the same time, the government increased
educational attainment; built strong democratic institutions, including a free press; increased
local decision-making authority; and improved investor confidence. The result has been a
substantial reduction in poverty; a growing economy; and, most important of all, a broadly

6
Structural policies include trade policy, foreign exchange regime, financial stability and depth, banking sector
efficiency and resource mobilization, property rights and rule-based governance, competitive environment for the
private sector, factor and produce markets, and environmental policies and regulations. Macroeconomic policies
include general macroeconomic performance, fiscal policy, management of external debt, macroeconomic
management capacity, and sustainability of structural reforms.

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maintained peace—indeed, the risk of conflict was an estimated 40 percent less in 1998 as
compared with 1965 (Collier 1999b).

Safety net and development programs that target demobilized soldiers have proven critical in a
number of post-conflict settings. It is particularly important to focus assistance on demobilized
soldiers, as they constitute a destabilizing force in the areas in which they reside. Collier (1999b)
estimates that in Uganda, “soldiers were one hundred times more likely than the average
Ugandan to commit crimes once demobilized” (p. 10). Colletta et al. (1996) investigate
demobilization programs in war-to-peace transitions in Namibia, Ethiopia, and Uganda, and they
argue that successful programs hinge on such things as provision of a “transitory safety net” to
assist soldiers and their families to “bridge the gap between demobilization and reintegration” (p.
22). They also note the importance of linking training approaches and content with employment
opportunities and placement programs, and of equal distribution of benefits to all demobilized
soldiers.

Assistance should also facilitate the return and reintegration of refugees and internally displaced
persons (IDPs). Displacement during conflict typically implies depletion of household assets and
worsening health for persons involved. Lack of legal protection makes these groups vulnerable to
exploitation and violence. Without assistance, the risk grows that refugees and IDPs will fall into
chronic poverty. This, in turn, increases the risk of recurrent conflict. Programs that restore
livelihoods and help convert war economies back to peacetime profiles provide critical assistance
to these groups and also lower the risk of future conflict. Cash for work and agriculture programs
have proven especially effective in several countries. In Cambodia, for example, rural
infrastructure programs at their peak employed more than 13,000 persons each day. These cash-
for-work programs ran for more than one year after the signing of the peace accords and
facilitated cooperative work among IDPs, returned refugees, and receiving communities to build
roads and repair irrigation canals. Programs like these can have a very high rate of return. Collier
and Pradhan (1998) estimate the rate of return of transport projects in post-conflict Uganda at 40
percent. The programs also fostered a sense of community cooperation and helped initiate a
process of mending relations and building trust among previously warring groups.

Field evidence also points to the important role that aid agencies can play in post-conflict
situations. Their efforts can help as well as hinder reconstruction efforts. Timely and effectively-
targeted aid can provide valuable returns in conflict-prone environments. At the same time,
donors must recognize that returns to post-conflict reconstruction assistance are far less certain
than to those in more stable environments and they must therefore be prepared to take on more
risk and to monitor programs constantly to minimize negative consequences. Uncertainty and the
enormity of needs in countries emerging from war imply that donors should streamline aid
programs and coordinate efforts. It also implies that they should encourage governments actively
to tackle difficult political problems—corruption, weak regulatory regimes, exclusive policies,
and the like. Donors need to engage and develop skills of people and groups working to promote
peace, and of those that are prone to violence, at both local and national levels.

As they become more engaged in post-conflict developmental relief, donors must develop a
deep, location-specific understanding of what drives conflict. Strategies must be tailored to local
environments. Program design methods should use conflict “lenses” and continually ask whether

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activities are increasing or decreasing the risk of renewed conflict. Monitoring and evaluation
should seek answers to questions not only about who is receiving and how they are using
program resources, but, more important, whether activities are exacerbating community divisions
or legitimizing corrupt and violent power structures.

Unfortunately, instances where donor actions have caused more harm than good are numerous.
For example, in most conflict situations aid agencies hire armed guards to protect their supplies
and staff, thereby sending an implicit message that it is legitimate to use weapons to determine
who gains access to, for example, food and housing materials. Mary Anderson, in her important
book Do No Harm: How Aid Can Support Peace—or War recounts the experience of one donor
in Tajikistan:

When an aid agency initiated a program of post-war housing reconstruction in Tajikistan,


it targeted its program toward those who had suffered the most damage. This group, the
Garmi, had also lost the war. (This is often the case—i.e., that aid assistance focused on
those who suffered the most often reach those who lost the conflict.) The Kulyabi who
had won resented the fact that the international aid community was restrengthening the
“enemy” whom they had defeated. They saw this as a political rather than humanitarian
act (Anderson 1999, 46).

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CHAPTER SIX
CONCLUSION

The development community has learned a great deal recently about the consequences and
causes of modern conflict. Still more will become known as analysts mine country experiences
for lessons learned and as empirical investigations overcome challenges associated with conflict
data. At the same time, it is becoming clear that analysts will have difficulty finding definitive
answers—particularly regarding questions on the causes of conflict—because of the inherent
complexities of conflict. Nonetheless, because conflict exacts such horrible consequences on the
people involved, it is important that policy makers take action based on what is currently known.

Clearly, development programs and poverty reduction interventions in crisis-prone and war-
affected societies must adhere to the principles and best practices discerned from experiences in
stable countries. It is also clear that such programs can reduce the risk of conflict substantially,
particularly interventions that promote inclusion and reduce differentiation among groups in
political participation and economic and social well-being. To achieve this, policy makers and
planners must design and implement programs with an understanding of the local causes and
consequences of violent conflict. They must also act with an understanding of the complex and
fragile environment of conflict-laden societies and of the urgent need to build trust and
cooperation among divided individuals and communities. Formulated with this knowledge,
development and poverty reduction programs will not only deal with the economic requirement
of the poor but also help build a foundation for lasting peace and sustainable development.

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CHAPTER SEVEN
REFERENCES CITED

Alesina, Alberto and Roberto Perotti. 1996. Income Distribution, Political Instability, and
Investment. European Economic Review 40 (6): 1203- 28.

Anderson, Mary B. 1999. Do No Harm: How Aid Can Support Peace—or War. Boulder,
Colorado: Lynee Rienner Publishers.

Blomberg, S. Brock, Gregory D. Hess, and Sidharth Thacker. 2000. Is There Evidence of a
Poverty Conflict Trap? Paper prepared for workshop on “The Economics of Political
Violence” directed by the World Bank Research Group, held at Princeton University on
March 18-29, 2000. WWW address: http://www.was.princeton.edu/~cis/worldbank.html.
Access Year: 2000.

Boswell, Terry and William J. Dixon. 1990. Dependency and Rebellion: A Cross-National
Analysis. American Sociological Review 55 (4): 540-559.

Boutros-Ghali, Boutros. 1992. An Agenda for Peace. Produced by: United Nations. WWW
address: http://www.un.org/Docs/SG/agpeace.html. Access Year: 2000.

Chandler, David P. 2000. A History of Cambodia. 3rd ed. Boulder: Westview Press.

Colletta, Nat, Markus Kostner, and Ingo Wiederhofer. 1996. Case Studies in War-to-Peace
Transitions. The Demobilization and Reintegration of Ex-Combatants in Ethiopia,
Namibia, and Uganda. World Bank Discussion Paper No. 331, Africa Technical
Development Series. Washington, D.C.: World Bank.

Collier, Paul. 1999a. On the Economic Consequences of Civil War. Oxford Economic Papers 51
(1): 168-83.

Collier, Paul. 1999b. The Challenge of Ugandan Reconstruction, 1986-98. WWW address:
http://www.worldbank.org/research/conflict/papers/uganda.htm. Access Year: 1999.

Collier, Paul. 2000. Economic Causes of Civil Conflict and their Policy Implications. WWW
address: http://www.worldbank.org/research/conflict/papers/civilconflict.pdf. Access
Year: 2000.

Collier, Paul and Anke Hoeffler. 2002a. Greed and Grievance in Civil War. WWW address:
http://www.csae.ox.ac.uk/workingpapers/pdfs/2002-01text.pdf. Access Year: 2003.

Collier, Paul and Anke Hoeffler. 2002b. Aid Policy and Growth in Post-Conflict Societies.
WWW address: http://www.economics.ox.ac.uk/CSAEadmin/conferences/ 2002-
UPaGiSSA/papers/Hoeffler-csae2002.pdf. Access Year: 2002.

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Collier, Paul and S. Pradhan. 1998. Economic Aspects of the Transition from Civil War. In H.B.
Hansen and M. Twaddle (eds.) Developing Uganda. Oxford: James Currey.

Cranna, Michael, ed. 1994. The True Cost of Conflict. London: Earthscan Publications Ltd.

Deininger, K. and L. Squire. 1996. A New Data Set Measuring Income Inequality. The World
Bank Economic Review 10: 565-591.

Deininger, K. and L. Squire. 1998. New Ways of Looking at Old Issues: Inequality and Growth.
Journal of Development Economics 57: 249-287.

Estes, Richard J. 1998. Trends in World Social Development, 1970-1995: Development


Challenges for a New Century. Journal of Developing Societies 14 (1): 11-39.

Goodhand, Jonathan. 2003. Enduring Disorder and Persistent Poverty: A Review of the Linkages
Between War and Chronic Poverty. World Development 31 (3): 629-646.

Green, Reginald Herbold and Ismail I Ahmed. 1999. The Heritage of War and State Collapse in
Somalia and Somaliland: Local-level Effects, External Interventions and Reconstruction.
Third World Quarterly 20 (1): 113-127.

Gurr, T. 1993. Minorities at Risk: a Global View of Ethnopolitical Conflict. Washington, D.C.:
The United States Institute for Peace.

Humphreys, Macartan. 2002. Economics and Violent Conflict. Harvard University. WWW
address: http://www.preventconflict.org/portal/economics/Essay.pdf. Access Year: 2002.

Kanbur, Ravi and David Pottebaum. 2002. Public Goods Dependency. Economics Letters 77
(2002): 233-237.

Mack, Andrew. 2002. Civil War: Academic Research and the Policy Community. Journal of
Peace Research 39 (5): 515-526.

Murdoch, James C. and Todd Sandler. 2001. Economic Growth, Civil Wars, and Spatial
Spillovers. WWW address: http://www.pcr.uu.se/murdoch_sandlers_data.pdf. Access
Year: 2001.

Nafziger, E. Wayne and Juha Auvinen. 2002. Economic Development, Inequality, War and State
Violence. World Development 30 (2): 153-163.

Pottebaum, David. 2002. Economic and Social Welfare in War-affected Societies. Ph.D.
Dissertation, Cornell University, Ithaca, New York.

Pottebaum, David and Ravi Kanbur. December 2001. Civil War, Public Goods and the Social
Wealth of Nations. Ithaca, New York: Cornell University, Department of Applied
Economics and Management, Working Paper WP2001-23.

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Stewart, F. 1993. War and Underdevelopment: Can Economic Analysis Help Reduce the Costs.
Journal of International Development 5 (4): 357-380.

Stewart, F. 2000. Crisis Prevention: Tackling Horizontal Inequalities. QEH Working Paper
Series—QEHWPS33. WWW. address:
http://www2.qeh.ox.ac.uk/RePEc/qeh/qehwps/qehwps33.pdf. Access Year: 2002.

Stewart, Frances, Frank P. Humphreys, and Nick Lea. 1997. Civil Conflict in Developing
Countries over the Last Quarter of a Century: An Empirical Overview of Economic and
Social Consequences. Oxford Development Studies 25 (1): 11-41.

UNCTAD. 1997. The Least Developed Countries, 1997 Report. New York and Geneva: United
Nations.

UNDP. 2002. Human Development Report. WWW address:


http://hdr.undp.org/reports/global/2002/en/pdf/HDR%20PR_HDI.pdf. Access Year:
2003.

Utting, Peter. 1994. Between Hope and Insecurity: The Social Consequences of the Cambodian
Peace Process. Geneva: United Nations Research Institute for Social Development.

World Bank. 2000. World Development Report. New York: Oxford University Press.

World Bank. 2003. Breaking the Conflict Trap: Civil War and Development Policy. WWW
address: http://econ.worldbank.org/prr/CivilWarPRR/text-26671/. Access Year: 2003.

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Gender and Pro-Poor Growth

by

Catherine Dolan
i

TABLE OF CONTENTS

EXECUTIVE SUMMARY v

CHAPTER ONE
INTRODUCTION 1

CHAPTER TWO
CHARACTERISTICS OF WOMEN’S LABOR FORCE PARTICIPATION 5
PUBLIC SECTOR EMPLOYMENT .............................................................................................6
AGRICULTURE.......................................................................................................................8
MANUFACTURING ...............................................................................................................11
SERVICES ............................................................................................................................14
INFORMAL EMPLOYMENT ...................................................................................................15

CHAPTER THREE
ASSESSMENT OF WOMEN’S EMPLOYMENT IN EXPORT
ORIENTED SECTORS 21
POVERTY IMPACT OF WAGE EMPLOYMENT ........................................................................21
Wages.....................................................................................................................22
Wage Gaps .............................................................................................................24
Wages and Growth.................................................................................................27
CONSEQUENCES OF WOMEN’S FORMAL WAGE EMPLOYMENT ...........................................28
Occupational Segregation ......................................................................................28
Control over Income ..............................................................................................30
Time Poverty..........................................................................................................31
Conclusion .............................................................................................................31

CHAPTER FOUR
ASSESSMENT OF INFORMAL EMPLOYMENT AND MICRO ENTERPRISE 33
CHARACTERISTICS OF WOMEN’S MICRO-ENTERPRISES ......................................................35
Home-based ...........................................................................................................36
Small Capital Base.................................................................................................36
Gender Segregation in Activities and Earnings .....................................................36
Investment Route? .................................................................................................38
Low Growth Prospects...........................................................................................38
Undifferentiated Products and Local Markets .......................................................39
Constraints to Growth ............................................................................................39
Financial Capital ....................................................................................................40
Markets ..................................................................................................................41

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Legal Barriers.........................................................................................................42
Education and Information ....................................................................................42
Regulatory Context ................................................................................................42
Lack of Skills .........................................................................................................42
Infrastructure..........................................................................................................43
Labor Burdens........................................................................................................43

CHAPTER FIVE
POLICY RECOMMENDATIONS 45
INTRODUCTION ...................................................................................................................45
Informal Employment: Policies to Enhance Micro-Enterprise..............................45
Micro-Finance........................................................................................................45
Land Rights............................................................................................................46
Business Support Services and Markets ................................................................46
Adult Education Programs/Training ......................................................................47
Provision of an Enabling Economic Environment.................................................47
Infrastructure..........................................................................................................48
Wage Employment.................................................................................................48
Trade Facilitation Measures: Meeting Standards ..................................................49
Labor Legislation and Policy .................................................................................49
Human Capital .......................................................................................................52

CHAPTER SIX
REFERENCES 57

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LIST OF TABLES

Table

1 Female Economic Activity Rate 6

2 Female Public Service Employment (1995) 7

3 Distribution of Women’s Labor Force Participation by Agricultural and


Non Agricultural Activities 9

4 Characteristics of the Workforce 11

5 Share of Women in Total Employment, in Manufacturing Employment and


in Export Processing Zones (EPZs): Selected Asian Countries (Percentage) 12

6 Women’s Employment in Free Zones in Selected Countries of


Central America and the Caribbean (1995) 13

7 Women’s Share of Employment in the Informal Sector 17

8 Informal Employment as Share of Total Employment by Gender 18

9 Home-Based Workers, Various Countries and Years 18

10 Gender Wage and Educational Differentials in Asia, 1975-95 (percent) 27

11 Tests of Differences Across Time for Two-Digit Duncan Indices 29

12 Self-Employment As Percentage of Non-Agricultural Employment 33

13 Informal Employment in Selected Latin American Countries: Importance


of Women in Specific Sectors 1980 (Percent) 37

14 Distribution of Male and Female Workers in Selected Branches of the


Urban Informal Sector in India by Income, 1988 (Percent) 38

15 Growth Characteristics of Micro-Enterprise 39

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v

EXECUTIVE SUMMARY

An important achievement in recent years has been the recognition by governments that there
is a gender dimension to poverty. Men and women experience poverty differently, become
poor through different processes and face different vulnerabilities and risks. Women’s
poverty is compounded by gender disparities in productive resources, infrastructure and labor
markets, all of which create barriers to viable economic participation. Overcoming these
barriers is essential for moving women out of poverty and fostering broad-based sustainable
growth.

There is mounting empirical evidence that the gender-based division of labor and the
inequalities to which it gives rise retard economic growth and poverty reduction, and
undermine the potential for successful human and economic development. These linkages
have been documented on a number of different levels:

ƒ Enhanced gender equality in the allocation of productive resources contributes to higher


national productivity levels. The results of macro- and micro-level analyses on the links
between gender inequality and growth reveal a consistent picture of gender-based asset
inequality constraining growth and poverty reduction. In sub-Saharan Africa gender
disparities in access to resources lead to marked differences in labor productivity and
hamper the supply response to policies, particularly agricultural policies. Similarly,
research shows that gender-based distortions in the provision of agricultural extension
services result in considerable output losses. Conversely, gender equality in control over
resources such as land, credit, technology and labor can contribute to more efficient
markets, enhancing productivity and growth rates.

ƒ The potential for growth is related to a country’s human capital, particularly education.
Female illiteracy is one of the most significant correlates of low growth and high poverty
rates. Studies have identified schooling as a main vehicle through which overall inequality
affects aggregate growth. In addition, empirical evidence shows that education is key to
women’s capacity to enter and gain from labor market participation, and often has positive
externalities at the household level in terms of fertility, decisions on the education and
health of children, and labor market participation.

ƒ Rigidities in the labor market and the under—employment of women lead to allocative
inefficiencies that thwart growth. When gender-based labor market distortions limit
women’s access to employment the labor supply becomes artificially contracted. This
means that men will obtain inefficiently higher wages, making the country less
competitive and hindering export performance.

ƒ Higher social returns can be achieved by targeting women than men. Higher earnings
under the control of women have a positive effect on household welfare, especially that of
children. Women are more likely to prioritize basic needs and collective welfare,
particularly in relation to children.

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A gender-equitable pro-poor growth strategy is one which promotes the economic


opportunities of poor women, both in self-employment and in paid employment. Although
some of the constraints to raising women’s economic participation and welfare are socio-
cultural in origin, there are a number of promising areas where policy support can make a
difference, including:

ƒ improved access to capital through financial sector reforms and micro-credit schemes;
ƒ investment in time-saving infrastructure;
ƒ social policies to promote education, health and childcare; and
ƒ measures to provide gender-appropriate social protection.

To contribute to gender-equitable pro-poor growth these interventions must be designed with


women in mind. Women will not benefit fully from improvements in the availability of credit
unless an effort is made to ensure a gender-neutral distribution, nor from increased off farm
employment unless they have equitable access. Nor are they likely to reap maximum benefits
from investments in education or health care unless an effort is made to ensure that these
services are sensitive to their needs.

Since many women from poor families are self-employed in agriculture or in micro-
enterprises, raising incomes in either of these activities can be a viable path out of poverty for
a good number of women in developing countries. However, women’s productivity and
income has not attained its full potential, due among other things to market failures that
inhibit productivity increases through access to productive assets, credit, information,
technologies, and more lucrative domestic and export markets. Given that women are usually
more susceptible to such market failures, it is important both to improve the functioning of
these markets and to develop gender-sensitive agricultural and micro-enterprise policies that
allow female entrepreneurs to overcome the imperfections. A gender equitable pro-poor
strategy must also focus on developing a set of policies that increase female employment and
allow productivity and wages to rise while ensuring the provision of basic rights and working
conditions. Finally, social protection policies should be designed to reduce women’s work
intensity caused by the “dual burden” women face in combining labor market and domestic
responsibilities. Women are more constrained than men from participating in the labor
market due to their primary responsibility for domestic work and childcare.

Many policies designed to address the gender dimension of poverty, and other policies which
might affect that dimension even though not designed with it in mind, are of recent vintage
and have been little evaluated. Accordingly, it is important to emphasise learning from
ongoing experience in order to move over time towards a more effective package of policies
in this area.

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CHAPTER ONE
INTRODUCTION

An important achievement in recent years has been the recognition by governments that there is
a gender dimension to poverty.1 Men and women experience poverty differently, become poor
through different processes and face different vulnerabilities and risks. Women’s poverty is
compounded by gender disparities in productive resources, infrastructure and labor markets, all
of which create barriers to viable economic participation. Overcoming these barriers is essential
for moving women out of poverty and fostering broad-based sustainable growth.

An explanation commonly given for the excess of female poverty is the high incidence of poor
female-headed households. Many studies have focused on the question of whether female-
headed households are disproportionately represented among the poor, and subsequently,
whether the category of “female headship” is an appropriate tool for targeting policy
interventions. While comparative analyses of the income and poverty levels of female- and male-
headed households are useful, they do not provide an accurate picture of the poverty suffered by
women and men within households. Household income measures overlook the gender
dimensions of poverty, which emerge more clearly through approaches that favor social
indicators (mortality, health and nutrition, and time allocation), and that capture the
intrahousehold processes underlying resource allocation.

Both Quisumbing et al. (2001) and Lampietti and Stalker (2000)2 report a higher incidence of
poverty among women than among men in developing countries when they incorporate evidence
on intra-household gender differences. The World Bank has documented how in some countries,
girls in poor families receive lower quality food, health care, and poorer education than their
brothers, and have less access to and control over the household’s productive resources than do
male family members (World Bank 2002a). There is also mounting empirical evidence that the
gender-based division of labor and the inequalities to which it gives rise retard economic growth
and poverty reduction, and undermine the potential for successful human and economic
development. These linkages have been documented on a number of different levels:3

ƒ Enhanced gender equality in the allocation of productive resources contributes to higher


national productivity levels. The results of macro- and micro-level analyses on the links
between gender inequality and growth reveal a consistent picture of gender-based asset

1
China has reported that due to its comprehensive approach to poverty eradication among women, the number of
its citizens living in poverty has declined from 65 million in 1995 to 42 million in 1998. Sixty percent of those
have been women (UN 2000).
2
However, this needs to be qualified. Quisumbing et al. (2001) compared poverty measures for men and women in
ten developing countries and found that while poverty measures are higher for among women, the differences are
significant in only a fifth to a third of the datasets. Similarly Lampietti and Stalker’s (2000) analysis of 60
Poverty Assessments carried out by the World Bank indicates that while women appear to be at a disadvantage
over the range of welfare indicators, this disadvantage is not clearly amplified for those below the poverty line or
in low-income countries.
3
Considerable research over the last fifteen years suggests that inequality is detrimental to efficiency and growth.
This literature has been surveyed in Kanbur (2000), Kanbur and Lustig (2000) and Development Alternatives, Inc.
(2002).

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2

inequality constraining growth and poverty reduction (Blackden and Bhanu 1999). In sub-
Saharan Africa gender disparities in access to resources lead to marked differences in labor
productivity and hamper the supply response to policies, particularly agricultural policies
(Evers and Walters 2000). Similarly, research shows that gender-based distortions in the
provision of agricultural extension services result in considerable output losses (Tzannatos
1999, Killick 2002). Conversely, gender equality in control over resources such as land,
credit, technology and labor can contribute to more efficient markets, enhancing productivity
and growth rates;

ƒ The potential for growth is related to a country’s human capital, particularly education.4
Female illiteracy is one of the most significant correlates of low growth and high poverty rates
(Sautter 2002). Deininger and Squire (1998) found that the main way through which overall
inequality affects aggregate growth is through schooling. This conclusion corresponds to that
of Birdsall, Ross and Sabot (1997) whose comparison between the economic performance of
countries in Latin-America and East Asia led them toconclude that the main factor underlying
the relative low growth rates in countries like Brazil and Colombia was inequality of
education. In addition, empirical evidence shows that education is key to women’s’ capacity
to enter and gain from labor market participation, and often has positive externalities at the
household level (Klasen 1999, Dollar and Gatti 1999). For example, the beneficial impacts of
women’s education5—in terms of fertility, decisions on the education and health of children,
and labor market participation—have been widely documented (Behrman and Sengupta 2002,
Hill and King 1995, Klasen 1999; Smith and Haddad 2000, Dollar and Gatti 1999);6

ƒ Rigidities in the labor market and the under—employment of women lead to allocative
inefficiencies that thwart growth. When gender-based labor market distortions limit women’s
access to employment the labor supply becomes artificially contracted. This means that men
will obtain inefficiently higher wages, making the country less competitive and hindering
export performance (Klasen 1999: 30).

ƒ Higher social returns can be achieved by targeting women than men (Lampietti 1999, Pitt and
Khandker 1998, Thomas 1997, as well as Deliverable 10-Education). Improved earnings

4
See Barro (1991), Mankiw, Roemer, and Weil (1992), and Klasen (1999, 2001).
5
According to Klasen (1999), had Sub-Saharan Africa had East Asia’s record in initial gender inequality in
education and closed the gap at the same speed East Asia had, real per-capita annual growth between 1960 and
1992 would have been between 0.4 and 0.6 percent faster. In South Asia, where gender gaps are more pervasive
and closed even slower, growth would have been 0.7-1.0 percent faster.
6
In their review of evidence from Pakistan, Behrman and Sengupta (2002) conclude that “Benefit-cost estimates
that include “social” benefits beyond the strictly economic ones generally tend to be larger and therefore
strengthen the argument for investing more in female schooling relative to alternatives, including in particular
male schooling. For a 5% discount rate, for example, the preferred estimates for the Pakistan case probably are
at least 1.7 (inclusive of economic benefits)”. They also note that “The strictly economic benefits are likely to be
a major part of the overall benefits.” The latter point suggests that an earlier estimate by Summers (1994) of a
benefit to cost ratio of 1.43 for the social benefits alone (using the same 5% social discount rate) was too high
side. But those social benefits still appear to be significant and, in conjunction with the strictly economic ones,
make a strong case for more education of girls in countries like Pakistan. More generally, drawing on the a very
careful statistical analysis, both cross-section and time series (for three selected countries,) these authors provide
considerable support for the idea that there are many good opportunities to invest in female education in ways
which are economically and socially productive.

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3

under the control of women have a positive effect on household welfare, especially that of
children. There is now a sizeable literature highlighting differences in the way the genders
allocate household income and resources, with women more likely to prioritize basic needs
and collective welfare, particularly in relation to children.7 In Brazil, for example, increased
income in the hands of mothers is associated with substantially larger improvements in child
survival than increased income in the hands of fathers. In the case of child survival
probabilities, the effect is almost twenty times larger (Thomas 1990, 1997).

Gender equality, therefore, is a determinant of development effectiveness and has significant


implications for the design of anti-poverty interventions and the nature of pro poor growth
strategies. Low and middle-income countries can achieve faster, broader-based growth if they
identify gender-related barriers to poverty reduction and act to remove them (World Bank
2002a). While some scholars argue that growth is generally distribution-neutral (e.g. Dollar and
Kray 2000), growth is neither automatically pro-poor nor inclusive. There is evidence that
women are often left out of the growth process (even when policies are pro-poor overall). While
the policy interventions most likely to result in pro poor growth are those that raise the relative
position of the poor while promoting broad economic efficiency (e.g. education, land reform,
preventative health care) (Killick 2002), institutionalized gender bias often prevents women from
benefiting from these. Hence, achieving a gender sensitive growth strategy entails not only
identifying a pattern of growth that favors the poor, bur one that maximizes the reduction of
female poverty. While such a strategy will take on different forms depending on countries’
resource endowments, levels of technology and socio-cultural context, it would broadly
encompass three main categories. All three paths would contribute to growth while concurrently
improving the relative position of women.

1. Eliminating barriers which impede access to economic opportunities: Reduction of


discrimination in access to productive assets such as land, financial services, inputs,
information, and other economic services, particularly through legal reforms.

2. Enhancing human capital: Increased investment in basic education and health services.

3. Promotion of labor intensive employment accompanied by a reduction of gender discrimination


in the labor market.

Insofar as policies that encourage labor intensive growth are powerful pro-poor measures, this
paper concentrates exclusively on women’s engagement in the labor market, including both
formal and informal employment. Since the poor (and especially poor women) rely almost
exclusively on labor income, addressing women’s position in the labor market is essential to
poverty oriented approaches. This is not to diminish the importance of removing asset-
inequalities or discrimination in human capital formation, which are covered separately in
complementary Pro-Poor Economic Growth Project papers.

7
See Thomas (1997), Hoddinott and Haddad (1995), Browning and Chiappori (1998), Quisumbing and Maluccio
(1999), and Lundberg, Pollak and Wales (1997).

Deliverable 18: Gender and Pro-Poor Growth


4

The paper is organized as follows. Section 2 reviews the nature of female labor market
participation in both formal and informal employment. The paper adopts the revised ILO
classification of informal employment as all remunerative work—both self-employment and
wage employment - that is not recognized, regulated, or protected by existing legal or regulatory
frameworks and non-remunerative work undertaken in an income-producing enterprise (ILO
2002a). This includes flexible, contingent and subcontracting work performed directly for formal
enterprises, as well as micro-enterprises and forms of self-employment with tenuous or no links
to formal processes (Beneria 2002). Section 3 reviews employment trends in women’s formal
labor force participation, focusing on the quality of employment, the contribution it makes to the
incomes and welfare of women and their families, and its capacity to raise overall national
incomes. The labor market affects different groups of workers in different ways (e.g. younger
versus older women and single vs. married women), and some workers may lose while others
gain from formal labor market participation. Section 4 focuses on women’s participation in
informal non-farm activities and identifies principal gender-based constraints to achieving
gender sensitive economic growth in some types of informal work. Section 5 provides policy
options that are consistent with growth with equity and some of the structural, policy, and
institutional conditions that need to occur to have gender equitable growth.

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CHAPTER TWO
CHARACTERISTICS OF WOMEN’S LABOR FORCE PARTICIPATION

With few exceptions, over the last three decades female labor market participation as
traditionally measured has steadily increased, exceeding 50 percent globally by the year 2000
(see Table 1) (UNDP 2002).8 The highest rates continue to be in the economies of sub-Saharan
Africa (SSA), and Asia and the Pacific, primarily due to women’s large share of agricultural
work (ILO 2003a). In addition, despite the economic downturn in transition economies, the share
of women in total employment has remained relatively constant and in no country of the region
has the ratio of female to male activity rates declined over time (Paci 2002).9

Female labor force participation has not only risen throughout the world but in many countries it
has formed the backbone of export-based expansion and overall employment growth, particularly
in parts of Asia (UN 1999). There are a number of factors that explain this trend ranging from
economic growth (and decline in some regions), to lower fertility rates to improvements in
education. However, increasing female labor market participation does not necessarily signal
economic prosperity. There is some evidence to suggest that a higher proportion of working
women are from poor households than is the case for men. In urban West Bengal, for example,
more than 40 percent of all women employed in non-farm production and services were from the
poorest categories (below Rs. 55 per capita per month in 1977-78), compared with 20.5 percent
among employed men (Bardhan 1989 cited by Sethuraman 1998). Likewise, in both Latin
America and Sub-Saharan Africa structural adjustment processes, fiscal instability, and
prolonged economic downturns have precipitated falling real incomes, pushing more women into
the labor market, in many cases to compensate for the contraction in male labor force
participation (Sethuraman 1998, Mehra and Gammage 1999). The remainder of this section
provides an overview of women’s economic participation across specific sectors and regions in
which women’s work is concentrated.

8
According to the ILO, the labor force participation rate (LPR) is a measure of the extent of an economy's
working-age population that is economically active. Economically active comprises all persons of either sex
above a specified age who furnish the supply of labor for the production of economic goods and services
(employed and unemployed, including those seeking work for the first time), as defined by the System of
National Accounts (SNA), during a specified time reference period. The LPR does not include work performed
for reproduction, and hence only partly captures women’s economic contributions (UN 1999).
9
Gender equality was one of the major achievements of the Soviet Union and the socialist regimes of Central
Europe. Women had equal access to schooling, health care and employment (Paci 2002).

Deliverable 18: Gender and Pro-Poor Growth


6

Table 1: Female Economic Activity Rate


(Age 15 and Above)

Rate Index As % of male


(%) (1990=100) rate
2000 2000 2000
High income 51.6 105 73
Middle income 59.5 100 73
Low income 51.6 103 61
World 55.3 102 68
Developing countries 55.8 101 67
Least developed countries 64.8 100 75
Arab States 32.9 117 41
East Asia and the Pacific 68.9 99 82
Latin America and the Caribbean 42.0 108 51
South Asia 43.3 106 51
Sub-Saharan Africa 62.3 99 73
Eastern Europe and the CIS 57.8 99 81
OECD 51.1 105 70
High-income OECD 51.7 105 73
Source: Human Development Indicators 2002, UNDP

PUBLIC SECTOR EMPLOYMENT

In most countries for which data is available, women’s share of public sector employment
outstrips their share of employment in private or parastatal enterprises. While there are fewer
women employed in the public sector of developing countries (35 percent) than in either OECD
(50 percent) or transition (46 percent) countries, in most developing economies women’s’
engagement in the public sector is quite significant (Hammouya 1999) (see Table 2). This is
particularly the case in Latin America where a substantial portion of female employment is in the
government sector (25 - 45 percent) (see Table 2). From the late 1980s onwards, however, there
has been a structural shift away from public sector employment. The steepest decline took place
in transition economies, where millions of workers were retrenched (Rama 2001a), although
Africa, Asia and Latin America have all been affected. In Africa, where public sector
employment exceeded 10 percent per annum throughout the 1970s and early 1980s, a succession
of fiscal stabilization programs has reduced government employment to the lowest level of any
developing region (EAMAT MDT 1995).

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Table 2: Female Public Service Employment (1995)

Country Number of Women's Share of Women's Share of


Women in Public Public Total Employment (1)
Employment Employment
Albania 105.3 38.2 9.1
Azerbaijan 2027.2 35.1 45.2
Barbados 22.9 48.5 47.0
Belize 10 45.0 33.0
Benin 34.8 25.9 33.1
Botswana(2) 99.4 39.8 38.2
Brazil 7842.9 53.0 39.9
Burkina Faso 42.4 22.2 …
China (3) 112605 36.0 …
Colombia (4) 432.5 45.1 41.4
Costa Rica 171.8 40.9 30.1
Ecuador 386.2 40.9 38.6
Egypt (5) 1206.8 10.8 13.5
El Salvador 172.5 39.9 37.8
Estonia 254.7 54.3 47.8
Ethiopia 711.6 27.3 43.2
Gibraltar 4 37.5 37.8
Hong Kong China 233.6 37.1 41.9
India (6) 19689 13.3 15.4
Jordan 214.1 27.8 24.8
Lithuania 591.6 49.8 38.6
Macau, China 16.6 36.1 …
Malawi 153.9 13.3 …
Malaysia 671 37.3 …
Maldives 18 32.2 27.1
Malta 50.1 22.6 26.5
Mauritius 85.2 19.2 31.8
Panama 148.1 46.0 37.7
Paraguay 138.6 43.7 40.8
Romania 5601.1 39.0 46.1
Slovenia 242.2 49.8 46.6
Sri Lanka 739.5 33.7 …
Thailand 2424.1 36.3 45.4
Trinidad &Tobago 129 34.8 35.7
Uruguay 228.9 41.0 41.4
Zimbabwe 313.9 23.5 20.6
Source: Public Sector Employment Data Base (PSEDB), Bureau of Statistics, ILO
Notes:
(1) In most developing countries total employment corresponds to formal sector employment.
(2) In public sector employment, only employees with regular contracts.
(3) Public employment in the State-owned units
(4) 7 main cities in the country
(5) Persons employed in private establishments with less than ten employees are not included in total
employment.
(6) Only the public sector and private enterprises with more than ten employees, excluding
agriculture

Deliverable 18: Gender and Pro-Poor Growth


8

The downsizing of state-owned enterprises and government agencies has had an adverse impact
on women workers. In those many countries where government has been the largest formal
sector employer of women , its shrinkage has tended to affected them the most. In Eastern
Europe and the countries of the former Soviet Union, the transition from centrally planned to
market economies put millions of women out of work (Paci 2002). In Vietnam, roughly 70
percent of workers impacted by public sector downsizing were female. In 1990-91, some
553,000 women workers were laid off from state owned enterprises, amounting to 19.7 percent
of all female wage employment in 1992-93 (Rama 2001a). This more severe impact on women
occurs even when they are not explicitly targeted by downsizing programs. Firstly, women who
lose public sector jobs typically experience a larger drop in earnings than men due the fact that
the gender gap in earnings is normally smaller in the public sector, implying a more significant
loss, in relative terms, for retrenched women (Rama 2001a). Secondly, the public sector often
provides benefits that are highly valued by women, such as maternity leave, childcare facilities
and benefit packages, which are less common in the private sector and generally unavailable in
informal employment, which absorbs the bulk of separated workers (Rama and MacIsaac 1999).
Thirdly, even when the bulk of retrenchment consists of men, it pushes more poor women into
the labor force to compensate for the loss of household income. This is evinced in several Asian
economies (Thailand, Philippines, Sri Lanka, Pakistan, and India), where women working in
export oriented industries are first time entrants to the labor market (Balakrishnan 2002).

AGRICULTURE

In developing countries the majority of the poor live in rural areas and agriculture is central to
rural poverty reduction strategies (World Bank 2002c; Deliverable 11-Agriculture). While the
process of economic development involves an overall shift in the structure of output and
employment away from agriculture to manufacturing and services,10 in developing countries as a
whole, agriculture remains the most important sector for female (as for male) employment. As
Table 3 indicates, 63 percent of women in developing countries are engaged in agriculture
activities (FAO 1999). Even in South Asia, which registered a decrease in the share of the female
labor force absorbed in agriculture from 65 to 44 percent in 1997, agriculture remained the most
significant sector for women (Mehra and Gammage 1999).

10
By the mid-1990s services accounted for almost two-thirds of world GDP up from about half in the 1980s (World
Bank 2000c).

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Table 3: Distribution of Women’s Labor Force Participation by


Agricultural and Non Agricultural Activities11

World/region Agricultural activities (%) Non-agricultural activities


(1) (%)
1980 1990 1997 1980 1990 1997
World 56 52 49 44 48 51
Developed countries 14 9 7 86 91 93
Developing countries 74 68 63 26 32 37
African developing 82 76 72 18 24 28
countries
- of which 83 79 75 17 21 25
sub-Saharan Africa
Asian developing 77 72 67 23 28 33
countries
Latin American and 21 13 11 79 87 89
Caribbean
developing
countries
Oceanic developing 43 44 45 57 57 55
countries
LIFDCs* 78 73 68 22 27 32
Low-income countries 82 76 71 18 24 29
Source :FAO, 1999.
* Low-income food-deficit countries.

Notes:

(1) Labor force participation is derived from data on the economically active population collected in
population censuses and labor force surveys. It constitutes the number of all employed and
unemployed persons (including those seeking work for the first time). It covers employers; self-
employed workers; salaried employees; wage earners; unpaid workers assisting in a family, farm or
business operation; members of producers' cooperatives; and members of the armed forces.

In most developing countries the agriculture sector is dualistic in nature with a well-developed
commercial sector comprised of medium- and large-scale farms and a smallholder (mainly)
subsistence sector. The majority of women are concentrated in the latter, as unpaid family
workers or own account farmers growing food for family consumption and sale in local markets
(FAO 1999). Women account for approximately 90 percent of household food production in
Sub-Saharan Africa, 65 percent in Asia and about 45 percent in Latin America (Blackden and
Bhanu 1999, Res n.d.). As smallholder farmers, women (in both male and female-headed
households) face a range of constraints to improved agricultural productivity and economic
growth. These include a lack of land, credit, technology, extension services, inputs and
marketing channels, all of which impede their ability to move into higher return product areas
(Quisumbing 1996). 12 A number of case studies in Africa also show that productivity and
efficiency are adversely affected by gender differences in productive assets, including labor,

11
Information relating to the labor force presented in this table is derived from data on the economically active
population collected in population censuses and labor force surveys. However, the extent of women's
participation in agricultural work can be significantly underestimated in these sources (FAO 1999).
12
See the empirical research of Buvinic and Mehra (1990), Kossoudji and Mueller (1983), Saito and Weidemann
(1990), Staudt (1982) and Quisumbing (1993).

Deliverable 18: Gender and Pro-Poor Growth


10

Gender and Growth: Missed Potential


which limit women’s capacity to market crops or to
invest in new crops (Kumar 1994, Sutherland 1988). Burkina Faso: Shifting existing resources
between men’s and women’s plots within the
Blackden and Bhanu’s (1999) review of cross country same household could increase output by
evidence shows that more equal control of inputs and 10-20 percent.
farm income by female and male farmers in countries
Kenya: Giving women farmers the same
such as Burkina Faso, Cameroon and Kenya, could level of agricultural inputs and education as
raise farm yields by as much as a fifth of current output men could increase yields obtained by
(see Box 1). women by more than 20 percent.

Tanzania: Reducing time burdens of women


Non traditional Agriculture Exports: In many could increase household cash incomes for
developing countries stabilization and trade smallholder coffee and banana growers by
liberalization have increased export orientation, thereby 10 percent, labor productivity by 15 percent
and capital productivity by 44 percent.
favoring large-scale commercial farming and export
cash cropping over household subsistence production. Zambia: If women enjoyed the same overall
degree of capital investment in agricultural
As a result, women are increasingly integrated into inputs, including land, as their male
agribusinesses in both production and value-added counterparts, output in Zambia could
processing and packing. Work in agribusiness increase by up to 15 percent.
constitutes a significant proportion of women’s formal Sources: Udry et al. 1995, Saito et al. 1994,
sector employment in many developing countries. In Tibaijuka 1994 cited by Blackden and Bhanu
Ecuador, for example, women represented over 40 1999.
percent of production labor and over 70 percent of
processing labor in 1994. Similar patterns exist in Kenya, Côte d’Ivoire, Zimbabwe, Egypt,
Guatemala, Sri Lanka, and Indonesia (USAID 1999).

In many countries the expansion of women’s agricultural employment has occurred in non
traditional agriculture exports (NTAEs), which have been widely adopted as a pro-poor strategy
due to their intensive use of land and unskilled labor. Successful cases involve a range of
horticultural commodities (in particular fresh fruits, vegetables, and flowers), as well as spices
and oilseeds. NTAEs have become integral to national development strategies in several African
and Latin America countries, many of which have achieved double digit growth rates for a
decade or more due to a number of favorable demand and supply side conditions. In Kenya,
horticulture is the fastest-growing sector of the economy, accounting for 22 percent of all
agricultural exports in 2000, with each job supporting an estimated 8 people. In South Africa
total fruit exports accounted for 30 percent of all agricultural export trade in 1999 (Barrientos et
al. 2003). In Zambia horticultural products have led the growth in agricultural exports over the
past decade, with year on year growth of horticultural agricultural exports exceeding 40 percent
on average in the latter part of the 1990s (Giovanucci et al. 2001).

In many countries, diversification into NTAEs has become a key way that the world’s rural poor
are now linked to global product markets. For example, South African deciduous fruit, Kenyan
cut flowers and Zambian flowers and vegetables employ an estimated 283,000, 40-70,000 and
8,000 workers respectively (Barrientos et al. 2003). Of these workers, approximately 75 percent
are female. As Table 4 indicates, in both Africa and Latin America these sectors are
characterized by high levels of female employment, with women engaged in wage work on large

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11

scale farms and in processing facilities.13 Studies show that most of these women are drawn
from rural subsistence farming households and were either engaged in smallholder agriculture
and/or informal activities prior to entering NTAE employment.

Table 4: Characteristics of the Workforce

Gender Composition Employment Status


(Percent Female) Age
Cutflowers
Kenya 75 20-34 Seasonal
Uganda 85 - Permanent
Zimbabwe 87 - Seasonal & permanent
Colombia 64 15-28 Permanent & contract
Ecuador 70 16-29 Permanent & contract
Fruit
Chile 45 30 Temporary
Brazil 65 - Permanent
South Africa 53 31 Seasonal , temporary & contract
Vegetables
Mexico 80-90 - Temporary, seasonal
Kenya 66 18-29 Temporary
Source: Dolan and Sorby 2003

MANUFACTURING

The most notable change in female labor market participation has occurred in manufacturing
sectors, particularly in the newly industrializing countries, where the expansion of labor intensive
manufacturing industries became the driving force for economic development during the 1970s
and 1980s. The feminization of export manufacturing is a feature in all developing countries,
irrespective of income level, previous pattern of female employment, the qualifications and
experience of the female labor force, or the social norms regulating women’s activities. By the
end of the 1990s women accounted for more than a third of the manufacturing labor force in
developing countries, and almost one-half in some Asian countries (Mehra and Gammage 1999).

The largest increases in female employment have occurred in countries that adopted export-
oriented development strategies, particularly those that established Export Processing Zones
(EPZs). There are at least 2,000 EPZs in the world, employing some 27 million people, of which
between 60 and 90 percent are women. Today, 93 developing countries have EPZs, compared to
24 in 1976 (UN 1999). EPZs have generated substantial demand for workers in a range of
countries including Dominican Republic, Egypt, Honduras, Malaysia, Mauritius, Sri Lanka,
Thailand, and Tunisia (see Annex 1). In many cases, the proportion of women employed in EPZs
is far greater than the proportion of women in the overall manufacturing labor force (see Table
5). In Sri Lanka, for instance, women's share of EPZ manufacturing workers increased from 32

13
A number of studies have documented the gender impacts of NTAE production. See Barrón (1994), Lara (1998),
Barrientos (1997), Collins (1995), Goldín and Asturias de Barrios (2001), Raynolds (1998, 2002), and Dolan
(2001).

Deliverable 18: Gender and Pro-Poor Growth


12

percent in 1975 to 84.8 percent in 1992 against 46.4 percent for the entire economy (UN 1999,
Chambers 2000).

Table 5: Share of Women in Total Employment, in Manufacturing Employment and


in Export Processing Zones (EPZs): Selected Asian Countries (Percentage)

Year National EPZ All other


Economy Manufacturing Manufacturing
Korea, Republic of 1987 40.4 77.0 41.7
1990 40.8 70.1 42.1
Malaysia 1980 33.4 75.0 35.6
1990 35.5 53.5 47.2
Mauritius 1984 30.7. 78.9 N.A
1987 34.4 66.2 N.A.
Philippines 1980 37.1 74.0 N.A.
1994 36.5 73.9 45.2
Sri Lanka 1981 36.0 86.3 29.8
1992 46.4 84.8 46.0
Source: Kusago and Tzannatos (1998), Export Processing Zones: A review in need of an update,” in
Discussion Paper Series, No. 9802, World Bank, Washington DC: January 1998, pp.6-7.

Despite the proliferation of EPZs, the pattern of female intensive growth is derived from a small
number of industries—textiles, apparel, footwear, and electronics, all of which have high price
elasticities of export demand and where competitive advantage is based on low labor costs. In
many countries (see Box 2), these industries represent the model of employment intensive
growth, incorporating large numbers of women from poor rural areas into export oriented
production. They are also industries whose workers have certain specific attributes. For
example, in both Bangladesh and among the maquiladora of Central America, female garment
workers are young (16 to 30 years of age), unmarried women of rural origin from poor families.
In Mexico and Guatemala many are also single mothers and heads of households (40 and 45
percent respectively) (ILO 1998, Fernández-Pacheco 2001). Most women who work in the
garment industry have had no prior wage work experience and possess limited education (Paul-

Female Employment in Garments and Textiles

The Garment Workers of Dhaka, Bangladesh: The garment industry of Bangladesh is considered a
development success story. In 1970 the export-oriented ready made garment (RMG) sector of Bangladesh
contributed US$ 1 million of export revenue. By fiscal year 1996-97 the export income from this industry had
increased to over US$ 3 billion, registering a growth rate of more than 27 percent per annum (UN 1999). The
number of garment factories grew from four in 1978 to 2400 by 1995 when 1.2 million workers were employed, of
whom 90 percent were young women under age 25. By the end of the decade, the garment industry employed 70
percent of all women in wage employment in the country (Bhattacharya 1999) and today is the largest single
employer of women outside of agriculture (Kabeer and Mahmud 2003). While Bangladesh is somewhat atypical,
several other countries including the Dominican Republic, Indonesia, Mauritius, Philippines, Republic of Korea,
Taiwan, and Tunisia have had similar experiences (UN 1999).

The Maquila of Central America: A number of Central American and Caribbean countries have achieved
impressive growth rates in the production of textiles and garments in the maquiladora. By 2000, the maquila sector
generated 48 percent of Mexico’s (gross) exports and 35 percent of its imports. Employment grew from 180,000
workers in 1984 to 1.3 million workers in 2000 (over one-quarter of Mexico’s total manufacturing labor force) before
declining to 1.1 million workers in 2002 (Hanson 2002). Across Central America, the maquiladoras have diversified
national employment profiles away from the traditional commodities such as bananas and coffee, making it the
vehicle through which many women have entered the manufacturing labor force. On the average, 3 of every 10
workers in Central America are working in the EPZs, the majority of whom are women (see Table 6) (Fernández-
Pacheco 2001).

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Majumder and Begum 2000, Fernández-Pacheco 2001). While women are employed mostly in
unskilled jobs (where less education is permissible) and face limitations on their access to more
skill-intensive jobs, it is nevertheless the case that these industries have facilitated a boon in
female employment (see Box 2). Many women might not have attained formal market
employment were it not for them.
Table 6: Women's Employment in Free Zones in Selected Countries of
Central America and the Caribbean (1995)

% of workers
Average employed
Number number of in textile & Total %
of workers garment number of of women
Country plants per plant industry workers workers
Guatemala 481 345 80 165 945 80
Honduras 155 395 95 61 162 78
El Salvador 208 320 69 50 000 78
Nicaragua 18 418 89 7 533 80
Costa Rica 250 200 70 50 000 65
Panama 6 200 100 1 200 95
Dominican Republic 469 353 65 165 571 60
Source: L. Daeren: “Cuestiones de género en la industria maquiladora en América Central y República Dominicana”,
paper presented to an ILO Subregional Tripartite Seminar in San José, Costa Rica, 25-28 November

However, there are some indications that the feminization of formal employment in export
manufacturing may be declining, particularly in EPZs that specialize in higher-technology
activities (electronics, for example), or that base competitiveness on quality and innovation
(Cling 2001). Since the early 1990s, declining levels of female employment have been registered
in several semi-industrialized countries including Taiwan, Hong Kong, South Korea, Malaysia,
Thailand, Singapore and Mexico (Ghosh 2002, Seguino and Grown 2002).

The decline in female employment is partially linked to cessation of concessions in several EPZ
countries. In Singapore, for example, almost all customs duties have been suppressed since 1994,
and other fiscal advantages offered to EPZs have been eliminated. It is also linked to processes
of technological upgrading. In order to garner higher rents and comparative advantage, many
middle- and upper-middle-income countries have shifted away from growth patterns based on
low skill labor to relatively high-skill manufacturing, particularly as they face upward pressure
on female wages (Seguino and Grown 2002). At a sectoral level this is associated with a
progressive increase in the quality of goods produced within EPZs, evolving from textiles and
clothing to electronics and high technology goods. The new EPZs require a relatively better-
educated workforce capable of being trained to use new technologies, and to continuously adapt
to production innovations (Cling 2001). Hence, we can expect that as the output of EPZs shifts
towards more technologically sophisticated goods (such as automobiles, in the case of Mexico)
the share of women workers in EPZs will likely fall (ILO 1998). For example:

ƒ In the Republic of Korea as production in the electronics industry shifted to more


sophisticated communication and computer products the composition of the workforce
changed in favor of male workers (Kim and Kim 1995).

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14

ƒ In Bangladesh, women workers account for only about 35 percent of the workforce employed
in factories manufacturing knitwear (which requires more advanced technology), whereas in
the factories manufacturing woven wear, they account for 68 percent of the total workforce
(Paul-Majumder and Begum 2000).

ƒ First generation maquiladora were based on the use of unskilled and semiskilled low, labor
intensive, largely feminine assembly activities to produce relatively unsophisticated
components. In contrast many second generation maquiladoras are adopting more
technologically advanced products such as software, which employ higher numbers of men
(Hanson 2002).

SERVICES

Although manufacturing has been an important locus of female employment, in many countries
employment in export-oriented services14 (e.g. information processing, tourism and financial
services) has expanded for women at the expense of industrial employment and, to a lesser
extent, agriculture (UN1999, Freeman 2000, Sen 1999). This shift is most pronounced in the
Newly Independent States and Latin America where 56 percent and 48 percent of the service
sector is comprised of women (Moghadam 1992 cited by Mehra and Gammage 1999). Service
sector employment has also grown in North Africa and West Asia,15 in East and Southeast Asia,
and the Caribbean. In the Caribbean women comprise close to 100 percent of foreign-owned off-
shore, data-processing companies (Freeman 2000). In general, women's share of employment is
more likely to exceed men's in the services sector (109 of 156 economies) (ILO 2003a).

However poor women are generally sequestered in unskilled, low wage services employment.
Some service jobs, mostly in information and knowledge-sensitive sectors such as software
design, computer programming and financial services require higher skills and employ women at
higher grades and wages, which can limit the employment opportunities for women from poor
families, who have less education and skills (Mitter and Rowbotham 1995, Pearson and Mitter
1993, Joekes 1995, UN 1999). Geographically, modern service activities are typically more
prevalent in middle-income than in low-income countries (although India’s information
processing and computer software design industry is an important exception) (Joekes 1999).

14
In 2001, services constituted about sixty percent of the world's output. Trade in services has continued to
increase, particularly in developing countries, accounting for more than fifty percent of total export revenues for
some nations (GTN 2003).
15
In 1970 clerical, sales and services commanded 26 percent of the total female labor force in North Africa and
West Asia, by 1990, 35 percent of the total female labor force was employed in services (ILO/KILM 2003).

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INFORMAL EMPLOYMENT

In most developing countries the working poor are concentrated in the informal economy,
engaging in activities that lie outside the formal organized economy and recognized institutional
framework, whether in agriculture or in non-farm activities (see Box 3) (ILO 2002b). In recent
years the term “informal economy” has come to encompass an increasingly heterogeneous group
of workers and enterprises, which differ in terms of type of production unit and type of
employment status as well as across sectors and countries. This includes the following work:

ƒ Self employed/own account workers


ƒ Heads of micro-enterprises
ƒ Unpaid workers and apprentices in micro-enterprises
ƒ Wage workers (including paid family workers) in micro-enterprises
ƒ Wage workers in the formal sector but in employment that is not governed by the labor
laws and regulations (i.e. casual, temporary, subcontracted work)
ƒ Wage workers not attached to any employer but who work regularly for households (e.g.,
domestic servants)
ƒ Wage workers not attached to any employer but who provide services to individuals,
households and enterprises on a casual basis (e.g., babysitters, porters, and messengers)

The bulk of new employment, particularly in What is the Informal Economy?


developing and transition countries, has been in the
In recent years the ILO has developed an
informal economy. In developing countries, informal expanded concept of the informal economy.
employment constitutes between 50 and 75 percent of In the expanded conceptual framework the
non agricultural employment, ranging from 51 to 65 informal economy is seen as comprised of
informal employment (without secure
to 72 percent of employment in Latin America, Asia contracts, worker benefits, or social
and Sub-Saharan Africa respectively16 (Charmes protection) both inside and outside informal
2000). Informal employment now accounts for more enterprises):
than half of all new jobs in Latin America and over 80 Informal Employment in Informal Enterprises
percent of new jobs in Africa (Chen et al. 2002). The (small unregistered or unincorporated
informal workforce in India is an estimated 370 enterprises), including: employers,
employees, own account operators, and
million workers, nearly 93 percent of the total unpaid family workers in informal
workforce (ILO 2002a). enterprises.

Informal Employment outside Informal


The growth in informal activity is partly related to the Enterprises (for formal enterprises, for
economic downturn which hit many developing households, or with no fixed employer),
regions in the 1980s, as a result of which structural including: domestic workers, casual or day
laborers, temporary or part-time workers,
adjustment and the associated contraction of the industrial outworkers (including
public sector forced more workers into the informal homeworkers) and unregistered or
economy (e.g. microentrepreneurs) to survive. It is undeclared workers.
also linked to the competitive pressures of Source: ILO 2002a
globalization, which have compelled companies to

16
The latest ILO published data on informal enterprises are based on information from 54 countries, most of which
still adhere to their own national definitions of the informal sector and thus there are necessarily difficulties in
data comparability.

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16

rationalize their operations, passing the costs of changing market conditions on to workers
through the ‘casualization’ of employment (Sassen 1998). To reduce the fixed cost of labor,
employers have increasingly resorted to various types of non-standard employment
(temporary/part-time workers, piece rate workers, seasonal workers, homeworkers etc.) in
manufacturing, services and agriculture.17

In all developing economies for which information by sex is available, informal employment is a
larger share of total employment for women than men (ILO 2002a). In many countries the
proportion of women in informal employment exceeds their share in the total labor force (see
Table 7).

In sub-Saharan Africa, 84 percent of female non-agricultural workers are informally employed


compared to 63 percent of male non-agricultural workers; in Latin America 58 percent for
women compared to 48 percent for men. In Asia, the proportion of female and male non-
agricultural workers in informal employment is roughly equivalent (ILO 2002a). The reliance of
African women on informal employment is striking (see Table 8). The proportion of the female
non agricultural labor force in informal employment is 97, 95, 87 and 83 percent for Benin,
Chad, Guinea and Kenya respectively. For women in sub-Saharan Africa, informal work
represents 92 percent of the total job opportunities outside of agriculture (against 71 percent for
men); and almost 95 percent of these jobs are performed as self-employed or own-account
workers (ILO 2002b).

Women are also over represented in specific branches within the informal sector, including the
self-employed and homeworkers. Although the variations between countries are large, Table 9
shows that women represent the majority of home-based workers, surpassing 80 percent in some
countries.

Although statistical information regarding the geographic concentration of women’s informal


activities is scarce, there are some regional consistencies. In Africa, women working in the non
farm informal economy are heavily concentrated in activities that are an extension of their
domestic chores, such as the sale of home-made beer, food stalls and other forms of cooked food
sale; and the manufacturing of mats and fiber products, clay products, processed food products
and cloth products.18 In Latin America, informal employment consists of a mixture of micro-and
small enterprises and some self-employment (ILO 2002b), whereas in Asia, subcontracting and
home-based work are prevalent.

17
While family responsibilities can increase women's preferences for flexible occupations, this explanation for
women’s predominance in flexible work is more common in developed nations.
18
All of the major sources of livelihood for women in informal activities, such as food processing, handicrafts,
vending and hawking, have been affected by trade liberalization, which has made competing imports more readily
available. Women basket makers, for example, have been displaced by cheap imports from Asia. In South Africa,
vendors and hawkers have been replaced by foreign traders from other parts of the continent (ILO 2002a).

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Table 7: Women’s Share of Employment in the Informal Sector

Women’s Share In The Informal Women’s Share


Sector in Total Labor force
Country Percent Year Percent
Latin America and the Caribbean
Brazil 41 1990 28
Brazil (Sao Paulo)
Colombia 43 1992
Costa Rica 15 1984 22
Ecuador urban
Honduras 55 1990 21
Jamaica 53 1988 46
Mexico 32 1992 28
Panama 20b 1982
Peru 50c 1985
Uruguay 34 1985 32
Venezuela 34 1992 28
Fiji 22 1986 21
India (Ahmedabad) 5 1977
Indonesia 48 1985 31
Rep.of Korea 31 1989 34
Malaysia 42 1986 36
Philippines 52 1988
Thailand 48 1990 44
Vietnam 37 1991
Botswana 70 1984-85
Burundi 28 1990 47
Congo 46 1984 40
Egypt 3 1986 10
Gambia 44 1983 39
Ghana 61 1970
Kenya 34 1982
Mali 40 1990 15
Tanzania 36 1995
Zaire (Kinshasa) 17 1984
Zambia 59 1986 30
Zimbabwe 58d 1986
Source: Various studies cited by Sethuraman, 1998

Women’s concentration in informal employment is often associated with a higher incidence of


poverty, with average incomes in the informal economy significantly lower than those found in
the formal economy. For example, in various countries of Asia and Latin America studies have
found that women wage workers in the informal sector earn less than women in the formal
sector. In Pakistan, 46 percent of households engaged in home-based manufacturing units in
Karachi and Gujranwala had a per capita income below the poverty line, and among the
households of wage workers in micro-enterprises, 45 percent were below the poverty line (Nadvi
1991). In Bangkok, two thirds of the self employed women were found to be poor ILO/ARTEP
(1991).

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Table 8: Informal Employment as Share of Total Employment by Gender

Women’s Informal Men’s Informal


Informal Employment Employment As % Of Employment As % Of
As % Of Non Women’s Non Men’s Non Agricultural
Agricultural Agricultural Employment
Region Employment Employment (1)
Sub-Saharan Africa 72 84 63
Latin America(2) 51 58 48
Asia 65 65 65
North Africa 48 43 49
Source: Data prepared by Jacques Charmes, cited by ILO 2002a
Notes:
(1) These figures probably underestimate women’s predominance. Women are more likely to be engaged in
informal activities that are undercounted, such as production for own consumption, paid domestic activities
in private households and home or subcontracted work. Women are also more likely than men to be in
small-scale economic units where their economic contributions are invisible (UN 1999).
(2) However, in some of the Latin America and Caribbean economies the gender gap narrowed during the
1990s. In four economies in that region (Bolivia, Ecuador, Honduras and Peru), the informal sector already
has a relatively greater importance for women's employment than for men's (ILO 2002a).

Table 9: Home-Based Workers, Various Countries and Years

Number Of % Of Non
Homebased Agricultural
Workers Workforce % Women
Tunisia (1994) 86,267 4.8 71.3
Kenya (1999) 777,100 15.0 34.9
Benin (1992) 595,544 65.8 74.1
Thailand (1999) 311,790 2.0 80.0
Philippines (1993-95) 2,025,017 13.7 78.8
Chile (1997) 79,740 1.8 82.3
Peru (1993) 128,700 5.2 35.3
Brazil (1991) 2,141,972 5.0 57.1
Brazil (1995) 2,700,000 5.2 78.5
Source: Charmes 2000 (estimations based on national sources).

However, the links between working informally and being poor are not always straightforward.
The correlation between informality and poverty largely depends on where in the informal
economy a woman is located. Informal incomes tend to decline from employer to self-employed
and own-account workers, to informal and casual wage workers, to industrial outworkers or
homeworkers. For example, a survey of women in the informal sector in India found that over 80
percent of female homeworkers earned less than one rupee per hour, compared to only 28
percent of self employed women (NIUA 1991). A similar pattern has been documented in
Vietnam where homeworkers earned half or less compared to own account workers (ILO 1995).
On the other hand, some work in the informal economy provides higher levels of remuneration
than does formal employment. A recent collection of studies shows that workers in the informal

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economy, especially the self-employed, earn more than unskilled or low-skilled workers in the
formal economy (ILO 2002b).

Working informally provides a significant source of income for women. A number of studies
conducted during the 1980s showed that women employed informally in India contributed
between 40 and 61 to household income. In one study of female household heads working in the
informal sector, 31 percent contributed 100 percent of the family income and another four
percent contributed over 75 percent (NIUA 1991). The scale of this contribution can be
particularly significant for poor households. In selected cities in India, the inclusion of women’s
informal sector income brought the proportion of households with income below Rs. 100 per
capita per month down from 59 percent to 38 percent, if The proportion of households below the
poverty line of Rs. 155 per capita per month decreased from 78 to 66 percent (NIUA (1991).
Women’s informal work can also make a strong contribution to GDP (reaching above 50 percent
in some African countries such as Benin, Chad, Mali and Kenya) (Beneria 2002).

In the next two sections, the paper provides greater detail on female labor market participation in
specific regions, identifying the implications for poor women.

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CHAPTER THREE
ASSESSMENT OF WOMEN’S EMPLOYMENT IN
EXPORT ORIENTED SECTORS

What does this review of female labor force participation reveal about its capacity to lift women
out of poverty? From the perspective of integrating gender into pro poor growth strategies an
obvious area of interest relates to the effects of women’s participation in wage employment
including the social and economic empowerment the employment affords. This not only includes
the labor intensity of economic growth but the persistence of wage gaps in some countries, the
nature of economic participation in terms of wages and working conditions, as well as
opportunities for skills upgrading. These issues are critical for assessing the consequences of
female formal wage employment, especially with regard to their potential for eradicating poverty
and promoting gender equality. This section examines these issues in reference to women’s
participation in export oriented wage employment. Since women comprised 60-80 percent19 of
the 11 million workers employed in MNCs during the mid 1990s, understanding the poverty
impact of these jobs is warranted (Joekes and Weston 1994: 41).

POVERTY IMPACT OF WAGE EMPLOYMENT

A concern for countries experiencing labor intensive export led growth is how much of this
growth extends to the poorest segments of the population (and is hence pro-poor). While few
studies have been conducted on the economic status of workers in these industries, the evidence
that does exist indicates that many workers fall below the poverty line. For example, McCulloch
and Ota (2002) found that over half of the sample households working in export vegetables fell
below the total poverty line. In the Madagascar textile industry, approximately 25 percent of the
households in which men and 44 percent of the household which women are employed are poor
(Nicita and Razazz 2003).

Participation in export oriented manufacturing, services and agriculture can reduce women’s
poverty and improve their living conditions in two main ways: through the creation of new
employment and through the wage differential between the sector and the rest of the economy.
While the labor absorbing potential of these industries is positive, the net effect on income will
depend on how and where the labor force was formerly employed. In most cases only a small
proportion of new entrants in manufacturing and high value agriculture export sectors were
previously formally employed: most are drawn from unemployment, unpaid family work and
from marginal sectors. For example, in Madagascar textiles, nearly half of the women (versus 28
percent of men) were unpaid family workers or openly unemployed, while a much lower
percentage of female new entrants were drawn from the service sectors and other industries (12
percent, versus 25 percent of male new entrants) (Nicita and Razazz 2003).

19
By comparison, women comprise only 17-18 percent of the global manufacturing labor force (Baden et al. 1998).

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22

Contrary to the literature that links women’s employment in export oriented sectors to
exploitative conditions, low productivity and low pay, this review has found that women’s
employment is often associated with higher household welfare, and wage levels and conditions
that are superior to forms of employment available outside the export sector. At a macro level,
women’s employment in export manufacturing coupled with two decades of rapid economic
growth in East Asia, have raised the standard of living among men and women, leading to
enhanced schooling, reduced fertility rates and extended life expectancy rates (World Bank
2001).20 In Madagascar approximately one million individuals are affected by the growth in the
textile industry either directly (because employment) or indirectly (because their households
include textile workers). On average, household members in which one or more individuals work
in the textile sectors obtain an increase in purchasing power of about 24 percent or $14 USD per
month. Differentiating by the gender of the workers, about 963,000 individuals living in
household where there is female textile worker have increased their expenditure by at least
$12.20 USD per month (Nicita and Razzaz 2003).

A number of studies have also suggested a positive association between women’s wage work and
their status in the household. In Guatemala, for example, women employed in the processing of
export horticulture products reported an improvement in their household bargaining power
resulting from their contribution to household income streams (USAID 1999). Surveys21 of
garment workers in Bangladesh have been particularly positive, showing that employment
provides tangible economic rewards as well as greater social prestige, control over income, and
decision making. Across industries and countries there are reports of enhanced self-esteem and
appreciation of the expanded opportunities that wage employment in the export sector brings
(Lim 1996, Tiano and Fialo 1991, Dolan and Sutherland 2002, Kabeer 2000). These findings
have led to a generally positive assessment of the impact of employment at the micro-level, by
way of its gender effects.

Wages

Whereas Asian manufacturing export countries quickly exhausted their labor surplus and faced
an increase in real wages thereafter, many contemporary low-wage economies are still in a
surplus labor condition (Joekes 1999 Despite this general positive wage trend in the most
successful countries, there are many cases in which little or no improvement has been observed.
Thus, the feminization of the labor force might appear to be somewhat less beneficial among the
maquila of Mexico than among the workers in export-oriented firms of SE Asian countries. For
instance, Fussell (2000) using a Labor Trajectory Survey for Tijuana, found that maquiladora
wages have not improved as employment has expanded in the area. The difference arises from
the nature of labor supply. While maquiladoras are concentrated in a region of abundant labor
supply, South East Asia quickly faced tight labor markets and high productivity increases
(Beneria 2002). These differences have ramifications for pro poor policy.

20
In East Asia life expectancy increased over the period 1970-97. Women gained ten years and men, nine years.
An increase in education coupled with the greater availability and adoption of contraceptive methods, fertility
rates also dropped in these countries. Korea’s fertility rate dropped from 4.3 to 1.7 during the period 1970-1997
and Indonesia’s and Thailand’s from 5.4 to 2.8 and 1.7, respectively (World Bank 2001).
21
See Amin et al. (1997), Kibria (1998), Paul-Majumder and Begum (2000), and Dannecker (1998).

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Though wages are low in many export oriented sectors, there is considerable evidence that the
wages paid there (both in agriculture and in manufacturing) are higher than the wages available
through alternative economic undertakings such as small-scale commerce or domestic industries
(UN 1999). 22 A number of sources (including OECD (1996) and Romero (1995), show that
wages in EPZs are on average higher than wages outside the zones. The Caribbean and Central
America zones typically paid 5-20 percent higher salaries than domestic firms. In the early 1990s
the Malaysian electronics and textile zone firms paid 30 percent higher average wages than
similar domestic firms. In the Kenyan export horticulture median wages are up to 30-50 percent
higher than in other comparable industries (McCulloch and Ota 2002). In the Bangladesh
garment industry the jobs generated offer higher wages than alternative forms of employment
available to women from low-income households. In a comparison of garment and non garment
wage workers, Kabeer and Mahmud (2003) found that wage workers outside of garments were
far worse off. Such wage gaps are part of a broader picture, in which wage rates vary according
to the size of the firms, their nationality and policy, type of industrial production, country
regulations and institutions, and overall labor market conditions (Kusago and Tzannatos 1998).

Overall, the evidence suggests that wages derived from export oriented employment can be part
of a growth process that is poverty reducing for both women workers and their families. For
example, in Honduras 22 percent of women employed in NTAEs in Honduras reported that they
were the sole source of income in the household. Another 73.5 percent stated that they
contributed fifty percent or more of their wages to the household (ILO 1998). In Bangladesh a
survey found that female workers employed in the export-oriented garment industry contribute
approximately 46 percent of their family income and that approximately 23 percent of the
unmarried female garment workers are the main earners of their family. Without female workers’
earning, 80 percent of their families would slide below the poverty level (Paul-Majumder and
Begum 2000). In the case of households in which one or more family member works in the
textile industry, the share of income increases from 59 to 81 percent. For women, this is
particularly significant. In the case of households in which one or more female members are
working in the textile sector, the women’ share of the households’ monetary income rises from 8
to 33 percent. For those households, cash income directly supplied by women in many cases
surpasses the cash income directly supplied by men. Considering the fact that 85 percent of the
women that work in the textile sector have never directly received any monetary income in past
employment (compared to 15 percent of new male entrants), the availability of textile wages for
those households is significant (Nicita and Razazz 2003).

In addition, a large proportion of women’s wages are redistributed to poor rural areas, reducing
household poverty and stimulating broader development in rural areas. For example, a
comparative study of export garment workers in Vietnam found that 45 percent of female
garment workers were sending money home on a regular basis compared to 30 percent of
workers in domestic economy (Kabeer and Anh forthcoming). In Kenya, export horticulture

22
In agriculture, Guatemalan women who work as day laborers on vegetable farms earn approximately Q4.00 per
day (US 80 cents), which compares favorably with the alternative occupation of artisanal work (Katz 1995:334).
In Mexico, wages in the tomato agroindustry—40 Pesos (US$ 4.3) per day—are similar to other commercial
agriculture industries. Similar evidence has been documented in the cut flower industries of Colombia, Kenya,
Zimbabwe, Ecuador and Uganda (Farné 1998, Blowfield et al. 1998, Davies 2000, Palán and Palán 1999 and
Dijkstra 2001).

Deliverable 18: Gender and Pro-Poor Growth


24

employment also contributes to household poverty reduction through the transfer of remittances
from workers to their families in rural areas where 83 percent of men and 74 percent of women
repatriate wages (Dolan and Sutherland 2002).

Thus, women’s concentration in export oriented production (agriculture and manufacturing) can
provide wages that are higher than the alternatives, the ultimate micro-level criterion of whether
it is likely to contribute to family income. While upward pressure on unskilled wages may be
more the exception than the rule in any given period (and should not be expected until the
surplus of labor has largely been absorbed), the jobs nevertheless remain better than the
alternatives in the domestic economy.

However, gender-related pay differentials may still be a cause for concern. And, while growth in
unskilled labor-intensive female employment may be a sound policy option at one level and at
one phase of development, marginalizing women in low wage, unskilled employment may not
be conducive to broader development goals in the medium or longer run. The following sections
examine whether the wages garnered through employment provide gender sensitive growth.

Wage Gaps

Gender-based pay differentials are a strong indicator of women’s disadvantaged position in labor
markets and an important constraint on women’s ability to escape from poverty. In developing
countries fully-employed women typically about earn two thirds as much as men (Standing 1989,
Tzannatos 1999). There is mixed evidence about whether the gender wage gap has been eroded
by women’s increased participation in paid work. For example, there has been a narrowing of
wage differentials in some developing countries, such as El Salvador and Sri Lanka, while in
countries such as Myanmar, Singapore and Taiwan, the gap has widened (Seguino 1997,
Standing 1999). However, a recent analysis of ILO data from 1983 till 1999 indicates that the
occupational gender wage gap appears to narrow with increases in trade, measured either as
trade-to-GDP in current or constant prices or FDI net inflows as a percentage of GDP
(Oostendorp 2002). This is consistent with empirical evidence that shows that the gender gap in
earnings declines more in tradables than in non tradables (See Artecona and Cunningham 2002
for Mexico). Similarly, in Vietnam, at the beginning of the reform process, the gender gap was
close to 39 percent in the private sector; five years later, in 1997-98, it had declined to 26 percent
(Rama 2003). This evidence suggests that competitive pressures associated with trade
liberalization might reduce the potential for employers to set wages and discriminate against
women.

Such evidence notwithstanding, gender based wage differentials remain marked in many female
intensive export sectors in both manufacturing and agriculture. For example, women’s wages in
the textile, clothing and footwear industries are consistently lower relative to those of men (ILO
2000). Among EPZ garment workers in Bangladesh, women earn 65 percent of male earnings,
and there are gender differences in earnings in every job category (Paul-Majumder and Begum
2000). A worker employed in the garment industry receives 41 percent higher pay for being male
even after controlling for education and skill in regression analyses (Paul-Majumder and Begum
2000). In the Madagascar textile industry, wages are unevenly distributed across male and

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female workers with the percentile distribution for men consistently higher than the one for
woman by about $20 USD (the median wage for men is about $47 USD per month in contrast to
$28 USD for women). Only among well-educated workers, those with more than 11 years of
education, are wages similar. The gender wage gap widened between 1997 and 1999 and it may
continue to increase over the next few years since the employment positions that require skilled
workers, for which wages increase more, are typically filled by men (Nicita and Razazz 2003).

In agricultural employment, female earnings tend to lag behind men’s as well. To a great extent,
this reflects the types of jobs for which women are employed, which are typically lower skill and
lower wage. For example, in the Ugandan cut flower industry unskilled workers (predominantly
women) earned Ushs 1,500-2,000 per day (US$ 1 to 1.3) in 1999 while semi-skilled workers
(predominantly men) were paid UShs 3,000 to 4,500 (US$ 2 to 3) and field supervisors UShs
7,500 (US$ 5) and above (Djikstra 2001). Similar pay differentials have been documented in the
export horticulture industries of Mexico, Brazil, South Africa, Chile and Kenya.

Male-female earnings differentials are conditioned by a number of factors, including changes in


demand relative to the supply of female labor, the nature of labor market institutions affecting
wage determination, the relative strength of labor market discrimination against women, human
capital endowments etc. (Joekes 1999). However, in the export industries in which women are
concentrated, several factors are at play:

Capital mobility: Women are disproportionately concentrated in labor-intensive export industries


with low sunk costs that tend to be geographically “mobile.” Capital mobility creates a threat
effect of MNCS relocating to different countries, as investors seek to maintain profits by
searching for cheaper wages elsewhere. For example, FDI by multinationals has shifted away
from the newly industrialized economies, where wages have improved, to less developed
countries such as India, Mauritius, Sri Lanka, and more recently Bangladesh, China and Vietnam
(Lim 2000). Hence, closure of the gender wage gap is likely to be more difficult in ‘feminized’
industries if a credible threat of capital flight exists.

Casualization of employment: The wage gap is sustained by women’s concentration in flexible


positions within formal employment. In both manufacturing and agriculture, evidence shows that
wages in informal employment (e.g. casual, seasonal, temporary etc.) are significantly lower than
for workers similarly employed in permanent positions (Roh 1990, Kabeer 2000, Dolan and
Sutherland 2002, Barrientos et al. 1999, Balakrishnan 2002). Because of their insecure work
arrangements and lack of protection in legal frameworks, women are far less likely to negotiate
for higher wages than permanent ‘formal’ workers, who are disproportionately men (Seguino
and Grown 2002).

Occupational segregation: While there is no necessary correlation between occupational


segregation (differential distribution of male and female workers in different segments of
industry) and gender-based wage differentials (Joekes 1995, Anker 1997), in developing
countries average wage gaps are often substantially a product of occupational segregation. In
many cases labor market segmentation leads to men concentrated in the more lucrative positions
and women confined to most of the temporary and/or unskilled jobs, where wages are lower
(Deutsch et al. 2001).

Deliverable 18: Gender and Pro-Poor Growth


26

Discrimination: In a summary of data23 from eleven country studies Joekes (1995) found that in
all but one more than half of the wage gap by gender was attributable to different pay structures
applied to male and female workers, and less than half was explained by variations in workers'
individual characteristics. A discrimination-based wage gap of 10-25 percent was the norm. The
few case studies of EPZ employment that address gender pay differentials all report systematic
underpayment of women workers compared to men, whether or not women work in similar jobs
(Joekes 1995). While gender inequalities in the transition economies remain small by
international standards, the portion of the pay gap that is attributable to labor market
discrimination is comparatively larger and has increased in some countries (e.g. Russia and
Ukraine) over the last decade (Paci 2002). In addition, studies of gender wage gaps show that
discrimination often results in a disparity in wages by gender at the point of marriage. Men are
awarded a breadwinner premium on marriage while women’s pay rates are reduced in the
expectation that domestic obligations will lower their attendance and performance (Gannicott
1986 for Taiwan, Appleton et al. 1995 for Africa cited by Joekes 1995).

Social Norms: Research suggests that wage gaps are not explained entirely by women’s
relatively lower human capital or productivity but are also linked to the social contexts in which
workers live and firms operate. For example, Seguino shows that in South Korea, employer
practices requiring women to quit work upon marriage are commonplace, limiting women's job
tenure and wage gains and their power to bargain for higher wages (Seguino 2000). Similarly, in
Zimbabwe and Kenya, women’s concentration in unskilled points of the export horticulture
production process partly reflects gendered patterns in African farming systems and social norms
that define distinct spheres of men’s and women’s work. In most parts of the world, social norms
and conventions about “appropriate” careers for women and men, funnel men and women into
different career trajectories, with disparities in market returns.

Human Capital: Wage differentials are also produced by differences in worker’s human capital
with respect to education, experience and ability. The link between education and wage rates is
well covered in the literature. For example, Gupta’s (2002) analysis of determinants of the
male/female non agricultural wage ratio in developing countries (based on WISTAT data) shows
that higher female literacy is associated with a lower gender wage gap. Similarly, as Table 10
shows, the gender gap in earnings narrows in countries where levels of educational attainment
are closer.

23
Data were derived from Birdsall and Sabot (1991), Psacharopoulos and Tzannatos (1992), Terrell (1992), and
Barbezat (1993).

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Table 10: Gender Wage and Educational Differentials in Asia, 1975-95 (percent)

Ratio F/M Educational Attainment


Country Earnings Female Male Ratio F/M
Hong Kong 73.2 7.6 9.2 83.0
Indonesia 54.2 3.5 4.7 75.0
Korea 48.5 7.9 9.9 80.0
Malaysia 50.5 4.6 6.5 70.0
Philippines 87.0 6.7 6.7 100.0
Singapore 54.4 5.2 6.3 83.0
Sri Lanka 79.6 5.3 6.1 86.0
Taiwan 64.1 6.5 8.7 64.1
Thailand 66.7 4.7 5.4 87.0
Source: Seguino 2000
Note: Educational attainment is measured as average years of education for persons 15 and over. Education data
are from Barro and Lee (1996). Earnings data are compiled by author from International Labour Organization
Yearbook of Labour Statistics (various years) except for Taiwan which are from DGBAS (various years).

Wages and Growth

The capacity to reduce gender based inequalities in export oriented employment while
simultaneously lifting women out of human poverty, however, poses challenges. Several studies
suggest that women’s low wage labor has enabled Asian economies to flourish by reducing the
unit labor costs of exported goods (Seguino 1997, Cheng and Hsiung 1998, Bello and Rosenfeld
1990 etc.). For example, an empirical analysis of twenty semi-industrialized and export-oriented
countries found that wage inequality acted as a stimulus to growth and investment: the wider the
gap between men's and women's wages, the faster the economic growth. The study estimated that
a 0.10 increase in inequality would lead to a 0.15 percentage point increase in annual income
growth Seguino (2000a).24 This evidence suggests that attempts to close the wage gap without
strategies to counteract the negative effect on export demand will slow growth, pitting gender
equity (facilitated by higher relative female wages) against economic growth. Indeed the reduced
growth associated with the inverse relationship between capital mobility and wages might result
in declining employment, particularly for women (Seguino 2002).

However, a capital intensive regime that allows for higher wages and where the option of simply
moving production elsewhere is more expensive—is not a viable option for pro poor female
growth. Women are not only less likely to be employed in high investment industries, but capital
intensive industries that allow for higher wages are neither efficient (nor poverty reducing) in a
labor surplus country. At the same time, while the objective of poverty reduction must be to
firstly absorb surplus labor (ideally allowing wages to rise through market forces such as the Asian
case), wages must be sufficient to raise people out of poverty. Therefore, in practice the challenge is
how to raise wages sufficiently to reduce poverty while obviating the tendency of enterprises to
seek cheaper labor elsewhere.

24
This result may have been affected by small sample selection issues and by the fact that the study focused solely
on export-led economies.

Deliverable 18: Gender and Pro-Poor Growth


28

CONSEQUENCES OF WOMEN’S FORMAL WAGE EMPLOYMENT

While employment in export oriented industries may be poverty reducing in income terms, it is
not unambiguously positive. Women may be advantaged in terms of employment; however, the
ability to gain from trade and labor market shifts hinges on several factors, ranging from the
social nature of gender relations and household organization to employment aspects such as job
stability, wages, working conditions, and opportunities for career development. For example,
rural women’s migration to urban areas for manufacturing employment may increase their
autonomy, yet at the same time, expose them to discrimination and exploitative working
conditions, and separate them from their children (Beneria 2002).

For growth in these sectors to be gender sensitive, it must provide a general improvement over
time, judged by rising female earnings relative to male’s and a relatively secure income stream,
and it should not come at the expense of women’s health (Seguino and Grown 2002). Across
industries and countries there is evidence that the types of jobs that many women hold in export-
oriented sectors are characterized by employment insecurity, long hours, strict supervision of
work, and occupational health issues.25 These issues have been extensively reviewed
elsewhere;26 taken together the evidence suggests that growth in labor intensive export oriented
employment may be more successful at addressing income poverty than gender equity (see Box
4). The following paragraphs highlight three processes that influence the poverty reducing
effects of these industries.

Occupational Segregation

Labor market segmentation by gender is pervasive in every region and at all economic
development levels. In most economies, gender divisions in the labor force are evident by sector
(e.g. female concentration in services, men in manufacturing), sub-sector (within manufacturing,
female concentration in garments and footwear, male concentration in automobiles), as well as
by occupational category (female concentration in unskilled manual work, male concentration in
skilled manual work) (Baden et al. 1998). For example, women comprise over half of all clerical

25
One of the most adverse social impacts of women’s employment in export-oriented industries is its association
with violence against women. It is argued that women’s economic participation can contribute to a sense of
inadequacy among men, leading them to use violence as a means of “control.” In the garment industry of
Bangladesh there have been several reported incidences of violence. In 1998, female garment workers account
for only two to three percent of the total population of women in Dhaka, whereas they account for 11 percent of
rape cases (Paul-Majumder and Begum 2000). Similarly, since 1993 the bodies of at least 325 murdered women
migrants from poor communities have been found around Ciudad Juárez city, many of them bearing evidence of
torture and rape. Over 85 of these women are known to have worked the late shift in maquiladorast, and most of
them disappeared on their way to or from their jobs in the factories (Treat 2002). The issue of safety traveling to
and from work has also been raised by women in South Africa’s deciduous fruit industry and Kenya’s flower
industry.
26
For manufacturing see Paul-Majumder and Begum (2000) for Bangladesh, Fleck (2001) for Mexican
maquiladora, Mauritian garment workers, for agriculture see Barrientos and Kritzinger (2002) for South Africa,
and Chilean fruit production, Barrón, and Rello (2000) for Mexican vegetables, Collins (1995) for Brazilian
grapes, Dolan and Sutherland (2002) for Kenyan vegetables, Korovkin (2002) for Ecuador flowers, Meier (1999)
for Colombia flowers etc.

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and service positions in Latin America27 and the Caribbean, and over a third in Africa, Asia and
the Pacific (Baden et al. 1998).

There is some evidence that the level of occupational segregation (as measured by the Duncan
index) has remained stable over time (see Table 11). For example, a study of occupational
segregation in Costa Rica, Ecuador and Uruguay showed that for the time period evaluated,
neither the starting levels of economic development nor macroeconomic performance resulted in
differences in the observed levels of occupational segregation by gender (Deutsch et al. 2001).
The persistence of occupational segregation is a concern for the realization of gender sensitive
pro poor growth as it is major source of labor market rigidity and economic inefficiency, and
reduces an economy's ability to adjust to change (Anker 1997). It not only has high equity and
efficiency costs, but it also contributes to less than optimal investments in female education, as
women lack access to the full range of occupations (Deutsch et al. 2001). In addition, as female
labor force participation rates rise over time, a greater proportion of the labor force is likely to be
affected by occupational segregation, and the efficiency losses from segregation mount
(Tzannatos 1999).

Table 11: Tests of Differences Across Time for Two-Digit Duncan Indices

Country/Year t – statistics
Costa Rica
89-93 -0.0802 Not significant
93-97 -0.7059 Not significant
89-97 -0.8287 Not significant
Ecuador
89-93 -1.1921 Not significant
93-97 0.0597 Not significant
89-97 -1.1099 Not significant
Uruguay
89-93 -0.2571 Not significant
93-97 -0.5527 Not significant
-0.7447 Not significant
89-97
Source: Deutsch et al. 2001

27
Occupational segregation by gender is greatest in the Latin American region. Psacharopoulos and Tzannatos
(1992) report an approximate value for the Duncan Index of 0.49. Blau and Ferber (1992) based on 1980 data
found the Duncan Index to be 0.435 in Latin America and 0.417 in the Caribbean.

Deliverable 18: Gender and Pro-Poor Growth


30

While export oriented industries are a valuable source of Some Drawbacks of Export Oriented
employment for women, institutional and ideological Employment
constraints tend to fortify occupational segregation, ƒ Technological change and specialized
confining women to job and skill categories that are production strategies tend to favor skilled
extremely difficult to break out of (ILO 2000). In many and well-educated workers, a category in
which women are severely under-
cases the division of labor within firms assigns men to represented
supervisory and managerial positions while women are ƒ Investing in skills in those segments of
clustered in production activities where there is less the labor market in which women are
opportunity for advancement and promotions. For predominant is considered to yield lower
returns.
example, in Bangladesh’s Chittagong EPZ, the ƒ Women are located in jobs which are
proportion of female workers categorized as “production more likely to be subcontracted,
worker” is much higher than the male proportion (98.4 relocated abroad or eliminated by labor-
saving technologies
percent to 79 percent). Women are also under- ƒ Amid growing competitive pressures,
represented in the “technical” and “salaried employees” new forms of work organization are being
categories, signaling that women are disproportionately introduced. This leads to a rise in non-
standard employment; i.e., lack of job
assigned to low skill/low pay jobs (ILO 1998) (Mandani security, limited possibilities for training
1999). The segregation of employment opportunities is and career advancement, and
perpetuated by gender differentials in training, both inadequate social security coverage in
terms of old-age pensions, sickness
within and outside of employment, and women often insurance and maternity protection
face difficulties in acquiring the formal skills required to ƒ Conventional gender disparities in wages
advance in their careers (ILO 2000). are often maintained.

Source: Romero 2000

Control over Income

As noted above, wages in these industries often compare favourably with local alternatives.
However, whether these wages foster a route out of poverty for women, enabling them to reduce
their vulnerability and improve their capabilities and investment options is linked to how much
control women can exercise over their use. For instance, it is not unusual for young women, who
form the majority of the EPZ workforce, not to have control over their earnings. Many of them
are obliged to remit their wages to their natal households. In some cases, women’s income is
used to fortify gender inequalities; for instance, to support the advanced education of younger
brothers (Wolf 1992, Sainsbury 1997). Likewise, studies on female factory workers in the
garments sector in Bangladesh and Pakistan show that close to half of female workers hand over
their earnings to their husbands or to some other male member in their households (Hafeez 1989,
Zohir and Paul-Majumder 1996, UN 1999). Similar reports have emerged from a number of high
value agriculture sectors in both Latin America and Africa. If women are not able to control the
earnings, this may mitigate the poverty reducing impact of this employment since women are
more likely to prioritize basic needs and collective welfare, particularly in relation to children.
Such limitations notwithstanding, there is also ample evidence that the women working in EPZs
typically control more income than they did before, suggesting both a direct decrease in their
poverty and in increase in the degree of independence that they have.

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Time Poverty

Labor-intensive growth strategies are more likely to benefit women if they also address the
gender division of labor within the household; what appears to be ‘efficient’ from a market-
focused analysis may be socially inefficient once the full labor accounting and time-use
associated with social reproduction are considered. Long-term research has pointed to the fact
that women are an over-utilized resource due to their often sole responsibility for unpaid
household work, a responsibility that is typically not reduced by their incorporation into paid
economic activity if they continue to live as part of their original household unit (Elson 1991).
Evidence from high value agricultural industries supports this view, with women begin found to
remain dominant in unpaid household work despite their integration into paid employment.28
There is also significant evidence from both agriculture and manufacturing that the inelasticity of
women’s labor supply to paid employment hampers their ability to respond to economic
incentives (Palmer 1991, Blackden and Bhanu 1990, Whitehead and Kabeer 2001) and impacts
their ability to participate in certain jobs and/or more distant labor markets, where wages might
be better.

Studies have also found that the presence of young children significantly reduces the probability
of mothers participating in the labor market. In Mexico, a newborn decreases a mother’s labor
force participation by 12 percent, and an additional child between one and five years old reduces
it by 9 percent (Cunningham 1999). In urban Brazil, an additional child below the age of two
reduces female employment by between 9 and 38 percent, depending on the econometric model
applied (Connelly et al. 1999). Indeed, a recent study of garment workers in Bangladesh found
that the majority of women prioritized childcare ahead of wages, signally the significance of
women’s labor constraints. In contrast, studies generally fail to find a negative impact of young
children on male labor force participation (World Bank 2001).

Conclusion

The above discussion highlights some of the issues that need to be considered in assessing the
potential of export-oriented sectors as a pro-female growth strategy and in designing such
activities so as to maximize their positive gender effects. While women tend to lose out when
industries inevitably upgrade (which is the path to maintaining market position in most of these high
value exports), women’s employment may nevertheless contribute to building human capital that
might be translated to other employment options and have catalyst effects on their household
bargaining power. For instance, in the Dominican Republic, many consider the EPZs to be an
important factor in decreasing the share of female poor from 22.6 percent to 15.8 percent over
the 1986-1993 period (Mandani 1999). The fact that many women, who were previously
engaged in unpaid household labor or informal sector work, are given an opportunity to enter the
formal labor force is in itself likely to have positive externalities, even if they are eventually

28
Newman’s (2001) study on gender determinants of time use in the Ecuadorian cut flower industry is a notable
exception. She found that women’s employment in floriculture was associated with higher levels of male
participation in housework

Deliverable 18: Gender and Pro-Poor Growth


32

retrenched. The effect of these industries also goes beyond the increases in income experienced
by workers. As we have seen, household members are often positively affected as well.

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CHAPTER FOUR
ASSESSMENT OF INFORMAL EMPLOYMENT AND MICRO ENTERPRISE

In every economy (for which information is available), women face greater constraints to
entering formal wage labor than do men, particularly employment that offers prospects of skill
development and decent working conditions. These constraints include educational, institutional
and cultural barriers, coupled with responsibilities for domestic work that increase women’s
opportunity costs to engage in formal employment. As a result, there is increased policy attention
on “non-traded” sectors, notably women’s participation in informal employment (e.g. micro-
enterprises) as a vehicle for poverty reduction.

In many countries, especially in developing and transition economies, women represent the
majority of entrepreneurs in micro-enterprises and informal trade. As noted in Section 2,
informal employment is comprised of both self and wage employment. In all regions, self-
employment is a greater share of non agricultural informal employment than wage employment.
It comprises 70 percent of informal employment in sub-Saharan Africa, 62 percent in North
Africa, 60 percent in Latin America, and 59 percent in Asia. Between 1980 and 2000 self-
employment increased from approximately one-quarter to one- third of non-agricultural
employment world wide, comprising over half of non-agricultural employment in the Caribbean,
Southern Asia and Sub-Saharan Africa (see Table 12) (ILO 2002a).

Table 12: Self-Employment As Percentage of Non-Agricultural Employment

1980-1990 period 1990-2000 period


All All Men
Region persons Women Men persons Women
WORLD 26 28 25 32 34 27
Developed regions 13 11 14 12 10 14
Africa 44 58 37 48 53 37
Sub-Saharan Africa 50 69 41 53 57 40
Northern Africa 23 23 22 31 38 28
Latin America 29 30 27 44 54 35
Central America 30 32 27 40 54 29
South America 29 29 29 43 51 38
Caribbean 27 28 25 55 67 43
Asia 26 24 26 32 32 30
Eastern Asia 23 20 24 18 26 16
SE Asia 34 38 31 33 40 24
Southern Asia 40 38 40 50 55 48
Western Asia 13 6 14 24 10 22
Source: Data prepared by Jaqcues Charmes cited by ILO 2002a

Deliverable 18: Gender and Pro-Poor Growth


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Self-employment is a particularly important source of income for women. In the period 1990-
2000 a greater proportion of women than men in non-agricultural employment were concentrated
in self-employment in every sub-region of the developing world (Table 12) (ILO 2002a). Income
from self employment can also be higher than that which women can acquire through other
economic activities. For example, women working as street food vendors in the Philippines,
Indonesia, Bangladesh and Senegal were found to earn between 40 and 260 percent higher than
the legal minimum wage (Lozs 1986 cited by Sethuraman 1998). The self employed in Bangkok
slums earned an average of 1880 baht per month compared to 1615 baht among wage workers in
microenterprises (under 10 workers) Suwattee (1985 cited by Sethuraman 1998) and in Harare
(Zimbabwe) in 1990 average income of head of enterprise (or own account worker) was
estimated to be Z$ 243 per month compared to minimum wage of Z$ 116 per month for
domestic service workers (World Bank 1991).

There is also more variation in the importance of the different economic sectors for women’s
self-employment than for men’s. For example, in areas where social norms constrain women’s
mobility there is a lower incidence of female street traders and a comparatively higher incidence
of women working at home. Overall women are concentrated in the following categories of
informal employment (ILO 2002a):

Trade: Women are involved in retail and wholesale activities, vending raw and prepared food,
as well as a range of commodities and crafts. With the exception of regions where gender norms
restrict women’s mobility, women account for a major share of street vendors, selling fruits,
vegetables and processed food alongside city streets. In sub-Saharan Africa and the Caribbean
trade is by far the most important source of employment among self-employed women (60 and
51 percent of non-agricultural self-employment respectively).

Service: In the service sector women are concentrated in activities such as cooking, maid
services, hair plaiting, laundry and informal lending etc. Women’s engagement in services is
more prevalent in Latin America, especially in Central America (64 percent) and South America
(60 percent) and also for self-employed women in Eastern Asia (48 percent) (ILO 2002a).

Production/Manufacturing: Women’s work in informal manufacturing consists of a range of


activities, generally undertaken in micro-enterprises or as home-based workers.

ƒ Homeworkers. Homeworkers are dependent subcontracted workers performing piecework


for an employer, who can be a subcontractor, agent or a middleman. According to the ILO,
homeworkers are defined as individuals who carry out remunerative labor at a location other
than the workplace of the employer, resulting in a product or service specified by the
employer. In developing countries, most female homeworkers are engaged in labor- intensive
manual activities (e.g. electronics, garment/embroidery, toy configuration) at home, which are
compatible with childcare and domestic work. In Asia, (especially in countries such as India,
Pakistan and Bangladesh), where between 42 and 60 percent of self-employed women in
non-agricultural activities are in production, women tend to be engaged in weaving,
electronics assembly, rolling or packaging incense sticks and cigarettes, and stitching
garments or shoe uppers (ILO 2002a). While there is a lack of sectorally-specific data,
homeworkers comprise a significant proportion of the total labor force in the garment industry

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where the percentage of all workers who are homeworkers is estimated at 38 percent in
Thailand, 25-39 percent in the Philippines, 30 percent in one area in Mexico, 30-60 percent
(depending on product) in Chile and 45 percent in Venezuela (Chen, Sebstad and O’Connell
1999).

ƒ Micro-enterprises consist of activities conducted by individual women or very small


establishments of a few workers. They can be classified as subsistence enterprises; enterprises
that can support a family but have limited growth potential; and enterprises that employ a
number of workers and have the potential for growth and productive application of
entrepreneurship.

During the 1990s the employment potential of micro and small enterprises (MSEs) 29 attracted
considerable attention among donors and policy makers. Because women comprise the majority
of the poor, and the majority of micro-entrepreneurs, they became widely targeted by
development programs. A USAID study carried out in 1995 found that 45 percent of MSEs in
Zimbabwe, Swaziland, Botswana, Kenya, Lesotho, Malawi, and the Dominican Republic were
headed by women (USAID 1995). In four of these countries, the majority were owned by
women. Women’s participation in MSEs was viewed as a key way to contribute to development
objectives:

ƒ Economic growth. Increasing the profits and efficiency of women’s enterprises is a


significant contribution to the growth of the economy as a whole, as well as within the small-
scale sector, given the prominence of women in that sector;

ƒ Poverty alleviation and employment creation. Women comprise the majority of the poor,
allocate a greater share of their income to family welfare, and tend to operate more labor-
intensive enterprises using female labor. Female employment in MSEs therefore contributes
directly to poverty reduction;

ƒ Economic, social and political empowerment Women’s participation in micro-enterprises


can contribute to economic empowerment that can enhance a woman's self-esteem and status
within the family (Goetz and Gupta 1996, Hashemi et al. 1996).

CHARACTERISTICS OF WOMEN’S MICRO-ENTERPRISES

As unusually defined, micro-enterprises in developing countries tend to share a number of


characteristics in addition to the basic feature of being unregulated; these include small scale of
operation; low entry barriers in terms of skill, capital, and organization; low access to credit; low
level of productivity and income; small scale of operation; and weak linkages and support
systems (Capt 1998). The special features of female micro-enterprises can be summarized as:

29
The United Nations Conference on Environment and Development, Rio de Janeiro, Brazil, 3-14 June 1992,
defined micro-enterprise as businesses operated by fewer than ten employees, which are owned and operated by
the poor, irrespective of their product or service.

Deliverable 18: Gender and Pro-Poor Growth


36

Home-based

While the term “home-based worker” includes homeworkers (as defined above) it also includes
self-employed, independent workers engaged in family businesses or own account operations
based in the home. Recent compilations of official statistics from the early to mid-1990s on
home-based work from 14 developing countries found that the share of women in home-based
work was over 75 percent in seven of the countries (ILO 2002a). Women are more likely to be
engaged in home based businesses than men (see Box 5). A USAID review of African micro-
enterprises found that nearly half (45 percent) of the female-headed MSEs are home-based, while
only 19 percent of the male-headed MSEs operate from the home (USAID 1995). Similarly, in
Bangladesh approximately 93 and 80 percent or women in rural and urban areas respectively
work at home in contrast to 60 and 35 percent of male entrepreneurs (Finnegan 2000).

Small Capital Base

Women are typically clustered in a narrow range of Work Locations In India


undercapitalized, low-profit activities, which tend to
generate low returns to their labor. An ILO survey A recent sample survey of the workforce of
Ahmedabad city in Western India brings out
conducted in Bangladesh found that the average capital very clearly the gender differences in the
per head was Tk.2, 500 for women and Tk.14, 845 for location of work.
male entrepreneurs. The figure was Tk.2, 250 for
ƒ 52 percent of all women, compared to 8
women who worked at home, and approximately Tk.5, percent of all men, work at home
150 for women operating in premises outside the ƒ 18 percent of all women, compared to 1
household, exhibiting the weaker productive potential of percent of all men, work in others’ homes
ƒ 5 percent of all women, compared to 23
home based work, in which women predominate. In percent of all men, work on the streets
Zimbabwe, the five sectors with the highest percentage ƒ 3 percent of all women, compared to 5
of women entrepreneurs had the lowest capital and skill percent of all men, work at construction
sites
entry barriers (USAID 1995). In part these differences ƒ 22 percent of all women, compared to 58
stem from women’s lack of financial capital to invest in percent of all men, work at factories,
small enterprises. offices, or workshops

Source: Unni 2001

Gender Segregation in Activities and Earnings

Women and men tend to be segregated into different types of enterprises, with ramifications for
growth and earnings. As noted, women tend to be concentrated in low investment, low income
sectors. As Table 13 shows, in several Latin American countries women comprise virtually all
employment in domestic service, which requires little or no investment. In Africa, women are
engaged in mat and basket-making, beer-brewing, cloth-dying, dress-making, soap-making, and
food/drink preparation while men predominate in metal manufacturing, wood processing and
transport. In many countries women are concentrated in “survivalist” rather than growth
activities. For example, a study on street food vendors in selected towns found the majority to be
women (53, 63, 94 and 80 percent in Senegal, the Philippines, Nigeria and Thailand respectively)
(Tinker 1988 cited by Sethuraman 1998).

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Table 13: Informal Employment in Selected Latin American Countries: Importance


of Women in Specific Sectors 1980 (Percent)

Sector Argentina Brazil Chile Ecuador Panama Paraguay


Manufacturing 38.2 25,1 45.1 29.6 44.0 58.8
Construction 0.4 0.1 0.5 1.5 0.2 0.6
Trade 26.0 21.5 29.7 29.5 28.0 39.3
Transport 2.0 0.2 1.9 0.4 1.0 0.5
Personal services 13.9 59.1 14.5 15.6 38.2 28.7
Domestic service 98.3 95.2 97.4 93.7 88.7 99.0
Other 23.4 27.8 31.9 39.2 37.8 28.8
All (excluding 18.6 26.4 24.2 21.9 22.3 37.7
domestic)
Source: ILO/PREALC as quoted in United Nations (1990), cited by Sethuraman 1998.

Women also face greater discrimination in earnings. Sethuraman’s review of informal


employment (1998) found that all available evidence from Africa, Latin America and Asia
pointed to the existence of gender disparity in incomes. These income differentials are evident
not only in the aggregate but also among workers in different types of informal work, including
self-employment, homework, and petty trade. For example, Scotts’ (1995) work in Zimbabwe
demonstrated that brick making (a ‘male’ occupation) garnered 7 times as much income as beer
brewing (a ‘female’ occupation) despite comparable investment. Similarly, Hussein and Nelson
(1998) showed that women’s main off-farm income earning strategy (selling beer) was less
profitable than men’s (selling grain) in Burkina Faso. In Latin America, for example, a study of
micro-enterprises in Mexico found that female-headed micro-enterprises in rural and urban areas
earn, respectively, 64 percent and 50 percent less than male-headed micro-enterprises. About 35
percent (42 percent) of the earnings gap in urban (rural) areas can be explained by differences in
productive characteristics, whereas 62 percent (59 percent in rural areas) can be attributed to
differences in the returns to these characteristics which are related to household constraints,
productivity and access to education and credit services (Sánchez and Pagán 1999). These gender
differentials are equally present within sectors (see Table 14). Women in piece-rate work in
Bombay (1990) earned 46 percent of men’s wage (Acharya and Jose 1991) and women in the
urban informal sector of Pakistan earned Rs. 900 per month compared to Rs. 2050 among men
suggesting a differential of 56 percent despite comparable levels of education (Sher 1995 cited
by Sethuraman 1998).

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Table 14: Distribution of Male and Female Workers in Selected Branches of the
Urban Informal Sector in India by Income, 1988 (Percent)

Income Rs. All activities Trade Trade in Petty trade Construction


per hour in food and
vegetables beverages
Male Fem Male Fem Male Fem Male Fem Male Fem
Below 0.50 1.67 23.84 4.59 21.15 8.11 37.35 1.89 23.12 0.28 0.83
0.51-1.00 11.85 26.93 25.69 34.62 35.14 42.17 15.72 37.73 6.96 11.81
1.01-2.00 52.44 39.07 46.79 34.62 32.43 13.25 54.72 31.13 60.25 71.70
2.01-3.00 14.09 6.01 15.60 7.69 21.62 4.82 10.69 7.08 13.25 7.42
3.01-4.00 11.09 3.20 5.50 1.28 2.70 7.55 0.47 9.91 7.28
4.00 + 8.86 0.95 1.83 0.64 2.41 9.43 0.47 9.34 0.96
All 100 100 100 100 100 100 100 100 100 100
Source NIUA (1991), cited by Sethuraman 1998. Based on a survey covering over 8000 households in
Bangalore, Lucknow, Vishakhapatnam, Faridabad, Trichur and Puri, India.

Investment Route?

There is some debate on whether gender differences in investment behavior mitigate the growth
prospects of micro-enterprise. This largely stems from the perception that women engage in
activities that are subsistence oriented, choosing to redirect earnings from a micro-enterprise
toward the welfare of the household rather for re-investment in business ventures. There is
credible evidence to support this. In Mexico’s urban areas, for example, 57 percent of women
enter the micro-enterprise sector to supplement family income (Sánchez and Pagán 1999).
Similarly, Pitt and Khandker (1998), using in a sample of poor households in Bangladesh, show
that household consumption expenditure increased 18 taka for every 100 additional taka
borrowed by women while the increase was only 11 taka for every 100 taka borrowed by men.
For many poor women smoothing consumption and ensuring household economic security
through micro-enterprises continue to take precedence over investment.

Low Growth Prospects

Women generally cannot access the funds to expand their micro-enterprises into SMEs and are
therefore limited in their growth prospects. Studies show significantly higher rates of return on
capital and enterprise expansion by male borrowers (Matienzo 1993). In a USAID (1995) survey
of African MSEs, female-headed MSEs grew less rapidly than those headed by males because
they were concentrated in slowly growing sectors (with a few important exceptions). Female-
headed enterprises in the survey countries grew around 7 percent, while those headed by men
grew around 11 percent per year. In addition, few female-owned MSEs graduate to become small
businesses. For example, Mead (1994) found that in Botswana, Kenya, Malawi, Swaziland, and
Zimbabwe most enterprises that started with 1-4 workers never expanded; further less than 1
percent employ ten workers. As a result, low income women entrepreneurs become entrapped in
a cycle of low incomes leading to low investment, leading to low profits, further reinforcing low
incomes. While this process is equally applicable to male entrepreneurs, poor women face a
number of gender-specific constraints that circumscribe their capacity to save and invest in their
enterprises (Mayoux 2001). Table 15 highlights these patterns.

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Table 15: Growth Characteristics of Micro-Enterprise

Nature of Micro- enterprise


High growth small business Low growth micro-enterprise
Enterprise level
Ownership Owner entrepreneur Self-employed, maybe in putting out system
Scale Small-scale in terms of number of “Micro” in terms of both number of workers
workers, but may have higher levels of and capital investment
capital investment
Diversification Specialized niche production Diversified production to decrease
vulnerability
Technology May be capital-intensive Low technology and labor-intensive
“Rationality” Profit-orientation, with separation of Survival-orientation with merging of
business accounts and business planning production and consumption and day-to-day
process accounting
Labor Wage labor Family labor
Market High-income domestic market or export Low-income local market
market
Legal status Registered as small business Unregistered
Background of entrepreneur
Poverty May be poor in terms of income but has Very limited access to resources and
access to support networks dependence on insecure networks and
unequal patronage relations
Education Medium to high education Low levels of education and often illiterate
Ethnic group Dominant ethnic groups Vulnerable ethnic groups
Reason for Independence and profits Lack of other alternatives and employment
becoming opportunities
entrepreneur
Source: Mayoux 2001

Undifferentiated Products and Local Markets

Women are concentrated in unskilled, easy entry, low margin enterprises that tend to focus on a
limited number of economic sectors (textiles, handicrafts, agriculture, small-scale retailing etc.).
This can create redundancy and market saturation, over capacity and surplus supply, which in
turn impacts upon margins and prices. Low margins are exacerbated by the fact that products are
typically marketed locally (this is usually the case for local consumer goods) or intended for the
tourist market, which increases the level of competition within the local market and the potential
for failure of enterprises (Capt 1998).

Constraints to Growth

There is little doubt that women’s participation in micro-enterprises can make a significant
contribution to household welfare and poverty alleviation. However does poverty reduction at
the household level translate into economic growth? Does women’s engagement in micro-
enterprises stimulate increased capitalization of businesses, employment creation, and long-term
income growth? These questions have been addressed in a study conducted by Kevane and
Wydick (1999), who test whether gender matters in the capacity of a micro-enterprise to
graduate from low to high growth by comparing the performance of female and male
entrepreneurs in Guatemala. Their results show that while there are considerable differences
between female and male-owned enterprises in terms of employment generation, overall female

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entrepreneurs show little statistically significant difference from their male counterparts in their
ability to generate increases in micro-enterprise incomes. Rather the differences that exist in
employment generation are largely attributed to the labor constraints placed on women during
childbearing and rearing years.

Labor constraints are just one of many barriers that women face at nearly all stages of micro-
enterprise development, regardless of size. While poor men and women often face similar
barriers to starting and maintaining a small business, women have additional, gender specific
constraints that impinge upon their capacity to engage in productive growth and generate the
positive externalities associated with MSE development. Most of these constraints relate to the
economic and socio-cultural environment in which women live, which may or may not be
conducive to entrepreneurship development for women. Social norms that undervalue women’s
work or assign women certain roles in the production process may also prevent women from
engaging in business or may even exclude them from important segments of the micro and small
enterprise sector (e.g. enterprises with a high growth potential). These constraints and barriers
are summarized as follows:

Financial Capital

Asset inequality has a strong bearing on women’s capacity to invest in, and benefit from
production activities. For example, women in female headed households in Uganda claimed that
their inability to finance initial start-up costs prevented them from investing in businesses and
trade activities (Dolan 2002). This leaves women confined to businesses and trade which require
little start-up capital and are characterized by low returns. Because of their ease of entry, these
businesses are frequently saturated with new entrants and thereby reduce women’s prospects of
generating a surplus for reinvestment in agriculture or other off farm endeavors.

One way that capital constraints can be alleviated is through the provision of credit, which is
generally considered a promising route out of poverty for the rural poor. Indeed, lack of access to
credit services has been identified as one of the most important impediments to micro-enterprise
growth (Evans and Jovanovic 1989, Rhyne and Holt 1994). In Jordan, approximately 29 percent
of women with businesses based outside their homes and 17.5 percent of those with home-based
enterprises reported that lack of access to credit as a significant problem.

Gender-based institutional barriers that exclude women from formal credit have been widely
documented (Goetz 1995). Among the most obdurate are women’s tenuous rights to property.
Since women in developing countries often do not have legal property rights, securing credit or
loans from formal financial or banking institutions for the creation or expansion of their
enterprises is rarely an option as they lack the assets to underwrite the security of loans. In Latin
America and the Caribbean, only 7-11 percent of the clients of formal credit institutions are
women. In Bangladesh a study found that more men have benefited from formal bank credit than
women, irrespective of source. Four percent of men in contrast to 0.5 percent women obtained
private bank credit, 3.2 percent of men in contrast to 1.9 percent of women received commercial
credit, and 2.4 percent of men and 0.3 percent of women received national bank credit. There
was also substantial variation in the value of loans (Tk.3,000 for women entrepreneurs in

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comparison to Tk.75,000 for their male counterparts-a factor 25 times higher for men) (Finnegan
2000). Traditionally, women turn to family members, friends, or the informal market for
financing, where interest rates are often several times higher (Elson and Evers 1997, Kabeer
1994).

Gender-specific constraints to women’s access of credit have been extensively reviewed


elsewhere but basically include the following:30

ƒ Requirements for collateral and/or minimum savings and/or husband’s signature as guarantor.
ƒ Skills required for filling out forms. Low educational attainment levels present difficulties
when applying for loans, in understanding banking terminology, and in developing the
business proposals required.
ƒ Time, mobility and resources required to make multiple visits to banks, particularly for rural
women in situations where banks are only located in urban centers.
ƒ Costs of loan applications, e.g. application fees, service fees, lender services and bribes to
officials. The regulations, rules and norms in financial markets and the formal banking sector
work in favor propertied male producers and exclude most women (Goetz 1995).
ƒ Problems dealing with male officials because of norms of female propriety and/or
discrimination.
ƒ Lack of information because this is generally channeled through male information networks.
ƒ Socio-cultural constraints. In some contexts men are either legally or socially expected to
give permission for their wives to engage in business activities, or to travel in order to trade.

Despite these constraints, however, micro-credit to female entrepreneurs boomed in the 1990s,
with the number of groups providing micro- credit reaching an estimated 3,000 worldwide by
1998 (Jalbert 2001). Several NGOs have made a concerted effort to address the impediments that
women face. Some, like the India Development Service, act as financial intermediaries between
formal credit institutions and groups of rural men and women. Others, such as the Community
Development Fund in Hyderabad, have sought to build credit co-operatives among poor women
and men. SEWA, Grameen Bank and Banco Solidario in Bolivia have adopted a third option of
establishing poverty-oriented banks, which have (to varying degrees) been successful models of
gender-sensitive lending.

Markets

Markets are often segregated by product and women tend to occupy particular niches in
marketing systems. Although women may enjoy some marketing advantages in products and
services where the majority of customers are female, market segregation creates obstacles to
gaining entry into markets for products dominated by men (Mayoux 2001). In South Asia and
parts of Africa women’s networks are constrained by restrictions on women’s mobility outside
the home. These restrictions limit their access to markets, particularly those in which men are
concentrated (Mayoux 2001). In so far as enterprises with greater access to markets and

30
See Ardener and Burman (1995), Berger (1989), and Kabeer (1994).

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resources are able to generate higher incomes, women’s exclusion from markets severely
impedes growth prospects.

Legal Barriers

Over-complex regulations and registration procedures impose considerable costs on MSEs, and
exclude poor women from potential benefits. Many women’s enterprises are unregistered and
therefore have no legal protection due to a combination of lack of resources (such as land and
other forms of collateral) and income to qualify and cover costs. While women may choose to
avoid registration (and hence taxation), women’s inability to register enterprises in their own
names can also bar them from benefits such as formal business development services. It also
increases the risk that women’s businesses (and the earnings derived form them) can be
appropriated by husbands and/or relatives without compensation.

Education and Information

Lower levels of female education influence women’s capacity to engage in productive enterprise
in two ways. Firstly, a number of studies have linked gender inequality in education to higher
fertility rates, which limit women’s potential for labor force participation as well as the
efficiency of their labor. Second, women’s illiteracy and low educational levels pose challenges
to their administration of small businesses and for their capacity to access product and marketing
information. Improved access to education by women can play an effective role in reducing
gender disparities in income in the informal sector.

Regulatory Context

Gender biases in micro-enterprise development are also a product of state policy (e.g. marketing
boards’ privileging of male heads of household and legal systems reinforcing male property
rights). The state sometimes also restricts women’s trading activities through taxation, through
licensing requirements, credit policy, and biases in the supply of information (Harriss-White
1996). In particular, local taxation regimes have been identified as an impediment to engagement
in local markets (Ellis and Bahigwa 2001), with inadequate and high taxes on transport
impacting the prospective profits of poorer rural female entrepreneurs (Mayoux 1995).

Lack of Skills

Women’s ability to diversify into new markets is limited by lack of technical, managerial and
business skills, and by poor access to skills and vocational training (Mayoux 2001). Even in
transition economies where women’s educational levels are comparatively high, women
frequently face difficulties in accessing relevant vocational training. Like extension services in
agriculture, technical training courses often focus on women’s “traditional” skills, which are
associated with subsectors where markets are saturated. For example, a study of women’s

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engagement in informal employment in West Africa showed the way in which skills training
were sex stereo-typed: women’s training is exclusively limited to five activities - tailoring, hair-
dressing, processed food, meat and fish processing and soap making (Birks et al. 1994). This
type of training does not assist women to diversify or expand into higher value markets.

Infrastructure

While both men and women are constrained by poor infrastructure, women have distinct
constraints, opportunities, and needs regarding infrastructure. For example, their responsibility
for household provisioning (water, fuel) means that women are likely to benefit
disproportionately from investments. Conversely, a lack of infrastructure inhibits women’s
engagement in a number of different types of micro-enterprises. Small enterprises that are heat
intensive (e.g. food processing) or light-intensive (e.g. night sewing), or require travel to markets
are greatly supported by access to electricity, water and feeder roads. For example, in Sub-
Saharan Africa, crops such as cocoa and coffee, marketed by men, are often collected from the
farm gate whereas food crops marketed by women have to be transported to the market. Studies
in Ghana and Tanzania revealed that women spend nearly three times as much time in transport
activities as do men, and transport about four times the volume (World Bank 2002). Poor
transport engenders a number of difficulties for female entrepreneurs. For example, reduced
transport services during off-peak periods also means that women spend longer traveling to and
from the market and restricts women’s ability to work effectively in the paid economy (Elson et
al. 1999). Women also face considerable problems because of inadequate transport facilities
which expose them to sexual harassment and risks of violence, adding to the other problems also
faced by men such as poor feeder roads.

Labor Burdens

Women’s responsibility for unpaid domestic work also restricts the types of work they are able
to perform, affects their ability to expand and/or diversify their enterprises, and acts as a major
constraint on productivity and earnings. Family responsibilities have a direct effect on earnings
by reducing the amount of energy available to devote to income generating activities (Hersch
1991). Where women are responsible for child care, they are confined to activities which involve
minimal danger for children, and require low levels of concentration so that they can attend to
children when necessary (Mayoux 2001). Responsibility for childcare also restricts women’s
mobility, obliging them to choose less productive and more vulnerable forms of activities such as
homework or to activities in the neighborhood of their residence. While this provides women
with greater flexibility, it is at the expense of a lower growth rate and earnings (Pagán and
Sánchez 1999).

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Thus, women in developing countries face a number of gender-based constraints that inhibit their
productive engagement in economic activity, and diminish their contribution to economic
growth. However, while the majority of women-entrepreneurs are presently engaged in low
growth activities, closing the gender gap by investing in women or by developing policies
targeted to the sectors in which women work can have a considerable payoff. The next section
discusses suggestions for policies that can contribute to gender-sensitive and inclusive economic
growth in both formal and informal employment.

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CHAPTER FIVE
POLICY RECOMMENDATIONS

INTRODUCTION

A gender equitable pro poor strategy requires a set of policies that address the twin goals of
growth and equity, promoting the economic opportunities of poor women while simultaneously
raising their welfare. While some of the constraints to raising women’s economic participation
are socio-cultural in origin and, as such, require a longer-term process of attitudinal change, there
are nevertheless a number of important areas of intervention for development policy. These
include social policies to promote education, health and childcare; investment in time-saving
infrastructure; improved access to capital through financial sector reforms and micro-credit
schemes; and other measures to provide gender-appropriate social protection. However, these
interventions must be designed with women in mind. Women will not benefit from
improvements in the availability of credit unless an effort is made to ensure a gender-neutral
distribution. Women will not profit from increased off farm employment unless these activities
bring higher returns to their labor. Nor are they likely to reap maximum benefits from
investments in education or health care unless an effort is made to ensure that these services are
sensitive to their needs (Whitehead and Kabeer 2002).

This section concentrates on those policy options that facilitate employment and income
generation for poor women. It identifies firstly the most promising policy options to stimulate
women’s self-employment and entrepreneurship, and secondly to improve women’s access to
and economic benefits from wage employment.

Informal Employment: Policies to Enhance Micro-Enterprise

In most countries, micro-enterprises employ the majority of the working poor, and for many
women are the most viable path out of poverty. Raising the productivity and efficiency of micro-
enterprises, therefore, can be an important part of a pro female growth strategy. However,
women’s engagement in micro-enterprises has not reached its full potential, largely due to
market failures that inhibit productivity increases such as access to productive assets, credit,
information, technologies, and more lucrative domestic and export markets. A gender-sensitive
micro-enterprise policy might address some of these constraints through attention to the
following policy areas:

Micro-Finance

Taking gender into account in the design of financial institutions and services can play an
important role in improving women’s access to financial assets. Improved access and efficient
provision of savings, credit, and insurance facilities can enable poor women to smooth their
consumption, withstand economic shocks, and enhance their income earning capacity through

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new productive activities and/or by diversifying existing economic activities. While


microfinance is generally associated with household-level poverty reduction rather than broader
processes of economic growth (DAI 2003), it is nevertheless an important mechanism for
reducing the poverty of poor women, particularly when supplemented by training and business
services.

Female saving and borrowing can be facilitated by implementing micro-finance initiatives


(whose operating costs are unsubsidized) that account for the constraints women face by:

ƒ Simplifying rules and procedures associated with securing credit and supporting the
development of non-bank financial institutions (NBFIs) that can reduce the transactions costs
of lending to women;
ƒ Replacing traditional collateral requirements (e.g. land, productive assets) with alternatives
such as peer guarantees or repayment incentives since credit markets that require conventional
collateral are beyond the reach of most women;
ƒ Bringing financial intermediation to women by providing direct and indirect state (or donor)
support for NGO/private sector efforts to promote female access to financial intermediation;
ƒ Ensuring that mechanisms are in place to monitor who (within the household) controls the
disbursement of funds; and
ƒ Ensure that restrictive laws requiring married women to receive spousal approval for bank
loans be removed.
ƒ Ensure that technology, vocational and management skills and marketing information are
provided as part of the credit package.

Land Rights

Since access to other resources (technology, credit, rural organizations) is often conditioned by
access and/or ownership to land, female poverty cannot be fully addressed without the support of
an enabling legal and policy environment that explicitly address women’s rights to land (FAO
1999). This is particularly the case in Africa, where women’s micro-enterprises are typically
derived from agriculture or natural resources. Land reforms that provide for joint titling of
husband and spouse or that enable women, as individuals, to hold land title, have been successful
in promoting greater equality in control of land. Alternative ownership models that combine
individual, common, public or group ownership can also provide a solution for women or groups
of women to secure or extend their existing rights. While the provision of statutory property
rights is not always necessary, there must be some recognized mechanism to safeguard and
enforce women’s access rights to land.

Business Support Services and Markets

Micro- enterprises are more likely to survive and raise productivity if they can access a range of
training, advisory and support services. Business development support services are particularly
facilitative, assisting small enterprises to graduate to more productive firms that have the
potential to employ other workers and contribute to broader economic growth. These services

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could include skills and enterprise training (accounting, business management, product
development etc.); linking women to market access services and infrastructure; and the
promotion of networking through membership organizations. Given that women entrepreneurs
face increasing competition from foreign products arising from trade liberalization, it is ever
more important to provide training on how to access niche markets and develop marketing skills.

These services are most effectively provided for sectors or subsectors that register growth
potential, and within which women are likely (or able) to be engaged. Services also need to be
sensitive to women’s economic and social constraints, and be available at times and places that
women can access them. However, the provision of such services is only likely to be cost-
effective if the transaction costs of implementation can be minimized. This is best achieved by
piggybacking business support services onto existing services. A good example of such an
initiative is Bangladesh Rural Advancement Committee (BRAC), which uses pre-existing
networks of micro-enterprises as a base for scaling up non-financial services such as training.

Adult Education Programs/Training

Improving technical skills is essential for entrepreneurial growth. Adult female literacy/
numeracy and education programs, targeted at women engaged in economic activity should be
considered for strengthening the abilities of women to expand their enterprises and graduate
from a micro-enterprise to an SME, as well as to gain human capital to assist in poverty
reduction. However, while specialized training is important, the potential for growth rests on
ensuring that training interventions are gender sensitive.

Provision of an Enabling Economic Environment

Small and micro-enterprise firms typically face a different set of constraints and opportunities
than do large firms. In particular, policy distortions within the regulatory environment (due to the
heavy burden of regulations that have not been designed with small firms in mind) can create
disincentives to growth for smaller firms, where the majority of women are found. For example,
larger enterprises can typically import their capital equipment at low or zero import duty rates
through investment promotion schemes. Small firms typically do not qualify for such schemes.
This leads to high transaction and conformance costs. Promotion of the small-business sector
requires a regulatory environment that minimizes the transactions costs associated with
registration and reduces the tax burden on small businesses. For example, taxing key inputs for
labor-intensive home-based industries can be counter-productive to efforts to lift women out of
poverty. Finally, regulations and licensing could encourage joint registration of male-owned
enterprises.

The patterns of growth in micro-enterprises are also strongly influenced by the state of the
macroeconomy, which generates employment as well as demand for the goods and services of
MSEs. When the overall economy is healthy, there is a significant amount of growth among
micro-enterprises as well. While employment growth may also occur during periods of economic

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stagnation, it is a less robust form of growth, characterized by enterprises with low barriers to
entry and that generate only minimal returns.

Infrastructure

A gender sensitive micro-enterprise growth strategy requires greater investment in infrastructure


as failure to take account of gender differences in the design and delivery of infrastructure can
result in misallocation of resources and weaken growth prospects. Increasing women’s economic
efficiency from infrastructure investments can range from minimizing distances women travel to
collect water and fuel, to electrification, which enables women to perform light intensive work at
home (e.g. night work), to labor saving technologies that enable women to process foods. All are
likely to have an immediate impact in raising women’s productivity. In addition, infrastructure
investment can result in substantial time savings in domestic work, releasing labor for allocation
to productive activities. Selected investments in water, fuel, transport, and other time-saving
infrastructure can reduce women’s and girls’ domestic workloads, particularly in poor, rural
areas—freeing girls to attend school and women to redirect their labor to productive activities.
Such investments are likely to yield a substantial pay-off in increased efficiency and growth.

Wage Employment

As this paper has discussed, international trade appears to have had a positive effect on wages
and employment in manufacturing and high value agriculture sectors of developing countries.
Whether women will be able to maintain their access to employment opportunities, whether there
will be an increase in productivity that will lead to wage increases, technology transfer and better
working conditions are important issues of policy concern (Seguino and Grown 2002). A gender
equitable pro poor strategy needs to focus on both raising the level of employment as well as
ensuring that women’s well-being is protected in the process of economic growth. There are a
variety of policy instruments to achieve this. While country-specific policies will vary depending
on the structure of the economy, the nature and extent of gender bias, and human capital
differences, the common objective is to develop a set of policies that increase employment and
allow productivity and wages to rise while ensuring the provision of basic rights and working
conditions to women workers.

The main policy levers with respect to labor market issues are:

ƒ Labor Legislation and Policy: Elimination of discriminatory employment barriers through


‘equal opportunity’ legislation. Under some circumstances minimum wages and labor
standards can also improve women’s economic conditions, but this policy area must be
approached with caution since interventions can also backfire (see Deliverable 12—section on
labor policy).
ƒ Social protection policies designed to reduce women’s work intensity caused by the ‘dual
burden’ women face in combining labor market and domestic responsibilities.
ƒ Development of human capital, particularly the acquisition of technical training and
educational attainment.

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ƒ Investment in infrastructure (e.g. roads, electricity and transport) to enhance the


competitiveness of export industries, thereby increasing the levels and quality of employment.
Infrastructure that reduces women’s time spent in unpaid labor is also important.
ƒ Macroeconomic policies. The removal of market distortions such as overvalued exchange
rates and import and/or export restrictions will provide an enabling environment for
investment and conditions conducive to growth in the sectors in which women are employed.

The following section discusses how several of these areas could be operationalized.

Trade Facilitation Measures: Meeting Standards

For developing countries to remain competitive in these industries, they will need firstly
continued access to western markets, and secondly the capacity to meet the increasing labor and
environmental standards required to participate in Northern markets. This requires enhanced
technical assistance and capacity building of companies in developing countries. Support should
be given to local trade associations to provide training to firms in developing countries on how to
meet environmental and social (and for agriculture food safety) standards so that they retain
access to northern markets. Doing so would place developing countries in a stronger position to
take advantage of the WTO agreements, increase competitiveness and hence, the levels and
quality of employment provided to women.

Labor Legislation and Policy

Promoting measures to reduce gender discrimination in the labor market can stimulate growth
and facilitate women’s labor market participation. Given the relationship between precarious
employment and poverty, women (and their households) will benefit from policies addressing
issues of labor market insecurity, low pay, and gender discrimination (Beneria 2002). Many
countries have instituted legislation for workplace equality between men and women or ratified
ILO core conventions that cover freedom of association and collective bargaining; forced labor;
child labor; discrimination; and equal remuneration. These measures do not award women
special protections, but they do have the objective of improving women’s labor market outcomes
by eliminating wage and employment discrimination (Romero 2000).

Labor Standards

One possible approach to gender equity in employment is through adherence to labor standards.
However, whether adherence to international labor standards supports or impedes poverty
reduction has been the subject of considerable debate. One traditional view is that labor
standards reduce competitiveness and growth (e.g. they act as a form of protectionism that raises
the cost of labor sufficiently to reduce international competitiveness). On the other hand there is
an increasingly held view that worker rights can have substantial growth-enhancing effects
(Kucera 2001, Martin and Maskus 1999), by raising productivity, output and firm
competitiveness. Thus, on the basis of an analysis of labor costs and FDI in close to 127

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countries during the 1990s, Kucera (2001) concluded that FDI was greater in countries with
higher labor standards because collective bargaining rights and freedom of association signaled
political and social stability, which attracts investment. Likewise, Palley (1999) showed that the
adoption of core labor standards in 15 developing countries was positively related to higher rates
of economic growth. and a recent World Bank report (Aidt and Tzannatos 2003) found that most
studies on the issue associated coordinated collective bargaining with improved macroeconomic
performance in the 1970s and 1980s (evidence for the 1990s was mixed). Research pointing to
teh benefits of protection of workers’ rights is still relatively new and hence inconclusive. It
should also be emphasized that adherence to some standards may be beneficial while adherence
to others may be prejudicial; a key goal of both research and policy is to sort out which elements
are which (see Deliverable 12-seciotn on labor policy).

Even if it emerges that important elements of labor standards have positive efficiency and growth
effects,, efforts to improve adherence to such standards must still take into account the fact that
firms often respond to more regulation by shifting production to countries with less regulation
and lower costs (Seguino 2002). It is therefore important that all developing countries ratify and
enforce the desirable standards so that firms are on a level playing field. At the same time,
developed nations must apply pressure on MNCs to only source from suppliers who are in
compliance. This would reward rather than penalize companies in developing countries that seek
to protect worker’s rights.

It also important that labor standards include greater attention to gender specific workers’ rights
issues such as freedom from sexual harassment and sexual discrimination, and are extended to all
workers irrespective of their employment status. There should be a concerted effort on behalf of
employers as well as national governments to ensure that homeworkers and other flexible
workers are provided with labor protections. This does not have to undermine the competitive
position of horticulture producers in EU markets. There is some evidence that companies that
offer benefits to all workers are rewarded through worker loyalty, lower turnover and higher
productivity, and are better able to provide overseas buyers with quality products.

Equal Pay

Closing gender wage gaps can raise women’s bargaining power in the household by improving
women’s fallback position. One of the key problems with equal pay for equal work legislation
however is that it has little impact on women’s wages where they are segregated by occupation
and industry (Blau and Kahn, 1995), as is the case in most female intensive export industries.
The occupational segregation problem is more effectively tackled through provisions that
prohibit sex-based discrimination in hiring, training, promotion, and firing. In cases where equal-
opportunity measures are effective in reducing discrimination against women in male-dominated
occupations, the demand for female labor will rise, and draw more poor women into the labor
market. Hence, equal opportunity policies that extend the terms and conditions of employment
equitably among all workers, regardless of gender (or other social characteristics) and
employment status are warranted. However, it must be recognized that, since in many countries
most poor women are employed in the informal sector or in other small firms to which

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applications of regulations like these ones is very difficult, the overall effect of such legislation
on poverty will often be marginal at best.

Minimum Wages

Raising wages can help lift women out of poverty. However, there are competing views on
whether a minimum wage policy is an effective mechanism for achieving poverty reduction and
economic growth. On one side is the argument that enacting minimum wages can enhance
product quality, stimulate productivity growth and help to close the gender wage gap since a
larger proportion of women are low-wage workers relative to men (Seguino 2002b, Blau and
Kahn 1995, Romero 2000). Proponents of a minimum wage also view wage regulations as a
contributor to poverty reduction. For example, Saget (2001) applied a quantitative estimation
model to cross-country data, finding that minimum wages did not negatively effect the level of
employment but did help to alleviate poverty.

On the other side is the view that minimum wages hamper competitiveness, leading to efficiency
losses and outward FDI. The outcome of these processes is a reduction in labor demand,
undermining the favorable effects of higher minimum wages. Because women are concentrated
in labor intensive industries, they experience the brunt of employment cutbacks that firms may
make in order to re-establish their international competitiveness (Romero 2000). These cutbacks
result in an increase in the supply of labor to the rural and urban informal sectors and a
depression of labor incomes where most of the poor are found (World Bank 1996).

There is a wealth of empirical evidence to shore up each side of the debate yet the employment
effects remain ambiguous, largely due to varying definitions and methodologies employed in
studies. On balance, however, it appears that ensuring a low minimum wage for women in export
industries may be more favorable for gender-equitable growth, especially since women hold a
disproportionate share of the jobs in these industries worldwide. Ensuring a reasonable wage
floor31 may incur little cost for firms and yet generate strong productivity pay offs and
developmental effects at the household level. For example, to the extent that women’s earnings
positively influence investments in children, raising women’s wages might disproportionately
help to reduce household poverty (Braunstein 2002).

Policies Restricting Women’s Access to Employment

It is also important that policies that have a distortionary effect on labor market outcomes, and
restrict women’s access to employment opportunities be reformed or removed. For example,
many countries have labor laws that restrict the types of work women can do (e.g. night or
overtime work) or the hours that they are allowed to work (See Deliverable 10-Education). These
regulations give firms less flexibility in the employment of women and hinder women’s progress

31
Defining what is a “reasonable” floor may not be so easy. See, however, the discussion in Deliverable 12, section
on labor policy.

Deliverable 18: Gender and Pro-Poor Growth


52

towards equity in the labor market (Rodgers 1999). A strategy for improving gender equality
should consider replacing these laws with equal opportunity legislation.

Human Capital

Investing in girls’ and women’s human capital, including both schooling and job-specific skills
development, improves women’s access to employment and facilitates their broader occupational
mobility. There is convincing evidence that relatively high rates of economic return are
associated with household and national investment in girl’s education, particular at primary level
(DAI 2002). However, while significant gains have been achieved in addressing inequities in
female education, an educational gender gap persists in some countries, with girls continuing to
face challenges to access, retention and achievement in relation to boys (Deliverable 10-
Education).

Non-formal education and literacy programs are also important. According to the World Bank
such programs rarely receive more than 5 percent of national education budgets yet they can be
very significant for the 64 percent of adult women who are illiterate worldwide (Aoki et al.
2001). Such programs would facilitate more rapid productivity gains and competitiveness in
industries that make intensive use of female labor.

Poor education and training tends to lock the workforce into low levels of productivity, which
thwarts the competitiveness of labor intensive industries in developing countries. While poor
governance and restrictive economic environments create a disincentive for investment in high
productivity jobs, firms face little pressure to raise productivity as wages are low (due to surplus
labor population) and because jobs tend to be flexible, giving employers little incentive to invest
in worker training. However, maintaining competitiveness in a globalized economy will
increasingly hinge on raising productivity as in most countries there are increasing job
opportunities for skilled labor and a parallel reduction of opportunities for low skilled workers
(Beneria 2002). Moreover, scientific, technical and managerial qualifications are going to be
more important in giving women access to jobs in the future, particularly as export
manufacturing industries upgrade and base competitive strategies on quality and innovation.
Higher qualifications are also required in the internationalized services sector (Joekes 1995). Yet
a workforce will not be able to adopt the new technologies required to make them more
productive without the requisite skills. While gains in women’s education are an essential step
towards gender equality, women’s educational achievements do not necessarily translate into
labor market gains. Formal education does not assure that women will be able to upgrade their
skills with the speed required by technological change and shifting labor markets (Beneria 2002).
This calls for greater vocational training and job retraining programs that can equip women (who
have dropped out of school or are beyond school age) to respond effectively to changing market
opportunities, and provide women with options to improve their skill set and upgrade
employment prospects in the future.

Establishing a stronger education and training system involves several dimensions, including
stronger pro-education policies by governments, commitments from companies to train and
invest in their workers, and addressing the social norms that lead to families to favor boy’s

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53

education over girls. Gender barriers to educational attainment and training can be alleviated
through a range of interventions:

ƒ Establish enrolment and graduation targets for girls and women in educational institutions,
with a view to raising knowledge and skills which would enhance their employability. Small
bursaries for girls’ education have also achieved success in some countries (e.g. Pakistan).
ƒ Reduce the direct and opportunity costs of girls schooling by eliminating or subsidizing the
costs of school tuition, uniforms, textbooks, and stationery.
ƒ Provide flexible school hours to allow girls to perform their household and agricultural work.
ƒ Recruit and train more female teachers, and reform curricula and textbook design to be
gender-sensitive.
ƒ Build community schools since it reduces the time—and security fears—associated with girls
walking long distances to school (Oxfam).
ƒ Institute advisory services to track women into education and training programs in sectors for
which labor demand is predicated to grow (Romero 2000).
ƒ Skills development programs, labor training/retraining;

Social Protection Policies

Women are more constrained than men from participating in the labor market or in obtaining
better jobs due to their primary responsibility for domestic work and childcare, which reduce
their mobility and capacity for autonomy. Policies therefore need to focus on alleviating the
reproductive constraints that women face so that they can engage in productive employment
(Rodgers 1999). These policies include maternity benefits/ parental leave and support for
childcare.

Maternity Benefits

A growing body of evidence indicates that job-protected maternity benefits enable women to
stay and advance in the labor market, contribute to growth in human capital endowments, and
can potentially yield a positive wage effect. Waldfogel (1998) argues that maternity leave also
strengthens women’s investment in firm-specific experience and training, and thereby increases
the productivity of female workers.

Although maternity leave legislation is prevalent in developing countries, maternity coverage is


variable. A significant proportion of employed women are not covered by maternity leave
benefits (e.g. temporary, casual and otherwise flexible workers), are unaware they are entitled to
leave benefits, or are employed in companies that do not comply with legislation. An important
policy priority therefore is to provide maternity leave benefits to as many female workers as
possible, to promote worker education on maternity leave entitlements, and to increase
enforcement (Romero 2000).

However, maternity leave can also act as a constraint on growth. In situations where maternity
provisions are funded by companies (thereby raising the costs of hiring women relative to men)

Deliverable 18: Gender and Pro-Poor Growth


54

or by women themselves, it may cost women in terms of employment, wages and skills
development (World Bank 2001). When maternity benefits are bankrolled by firms rather than
governments, firms respond by reducing their wage offers to women or by trimming their
demand for female workers (Romero 2000). Evidence suggests that mandated maternity benefits
without compensation from public funds tend to result in greater inequity, with women’s wages
falling to offset the cost imposed on firms. For example, in Costa Rica legislation to lengthen the
duration of maternity leave had little influence on wages and employment until after a new
enforcement mechanism was enacted in 1990 (Gindling and Crummett 1997), at which point
women’s wages declined significantly.

Relying on the market to deliver paid maternity is therefore not the best option, either for
women workers themselves or to stimulate growth in labor intensive industries. Maternity
benefits need to be converted from a mandate on individual employers to an insurance program
financed (fully or partially) through contributions from government coffers. A recent ILO study
shows that total labor costs associated with hiring women were kept down somewhat in countries
where maternity leave was financed directly with government funds (Chile) or through social
security systems (Argentina, Brazil and Mexico) (ILO nd). Financing maternity benefits through
national insurance can extend coverage to a larger number of women who work in the informal
sector (Tzannatos 1999). Clearly the coverage and the magnitude of the maternity benefits do
have to reflect capacity to pay, on the part of private employers and of the state.

Policy should ensure that therefore:

ƒ Maternity benefits are legislated.


ƒ Workers are educated on maternity leave provisions.
ƒ Maternity benefits cover as many workers as is financially feasible.
ƒ Public support is provided for paid maternity leave through tax revenues or though social
security administrations.

Childcare

Lack of adequate childcare is the foremost barrier to female employment and a strong
determinant of women’s work status. For example, a significant degree of occupational
segregation is related to childcare constraints since women are channeled into occupations that
allow them to combine employment and childcare responsibilities (IFPRI 2001). Childcare is as
also as essential for the well-being of children as it is for facilitating parents’ participation in the
labor market. For example, in countries where outside provision of childcare is not available, the
burden of care falls on “mother substitutes” such as young girls (Ilahi 2000).

Childcare provision therefore has a significant impact on women’s work and earnings. Recent
studies from Brazil, Kenya, Romania, and Russia have analyzed the impact of physical access
and the costs of out-of-home childcare facilities on mother’s labor force participation and on
girls’ schooling outcomes (Deutsch 1998; Lokshin 1999; Lokshin, Glinskaya, and Garcia 2000).
These studies all indicate that accessibility to low-cost, out-of-home childcare options increases
the probability that mothers will enter the labor force. Subsidizing childcare can also raise

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55

women’s earnings. In Russia, simulations show that a full subsidy to childcare allows mothers to
earn an additional 0.50 rubles per ruble spent by the state, while the wage subsidy increases their
earnings by an additional 0.24 rubles per ruble spent by the state (Lokshin 1999). Hence, policy
solutions that facilitate the provision of outside care will contribute to a number of positive pro
female growth benefits and potentially lead to positive externalities in the form of higher
secondary attainment of girls (Ilahi 2000).

Different countries have followed various modes of state assistance to childcare—public


provision of childcare; income transfers to families or specifically to mothers to cover the cost of
childcare services including vouchers; and wage subsidies to mothers if they remain in the labor
force (World Bank 2001). There is also evidence that subsidies for private care (e.g. vouchers)
are more cost-effective in raising female labor force participation and incomes than direct
subsidies to public facilities or wage subsidies (Deutsch 1998, Lokshin (1999) and Fong and
Lokshin (1999) cited in Ilahi 2000:31). However if remuneration from employment remains low,
childcare markets are unlikely to evolve as low wages make the opportunity cost of women
working too high.

Some degree of state action, perhaps in partnership with the private sector, will be necessary to
provide families with a form of childcare that enables women to gain from labor market
participation. This might include the following policies:

ƒ Wage subsidies;
ƒ Targeted childcare subsidies (vouchers) provided to poor households;
ƒ Community based childcare facilities;
ƒ State childcare facilities

The key question concerning all of the above benefits is who pays for them: employers in the
form of (potentially) lower profits; workers in the form of higher benefits and lower wages; or
workers outside the formal labor market who might benefit from higher labor demand if total
labor costs were lower (Lindauer 1999). To ensure a win-win situation—to make gender equity
compatible with growth—there needs to be a strong role for government in managing these
economic outcomes.

Deliverable 18: Gender and Pro-Poor Growth


56

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57

CHAPTER SIX
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Pro-Poor Growth and the Environment

Growth Strategies that Protect the Poor and the


Natural Environment
by

Robert Repetto

Environment and Poverty: Practical Challenges to a


Sustainable Relationship
by

Federico S. Fische

Two separately authored papers have been written on environmental aspects of pro-poor growth policies and
programs. In other Issues Papers in this series, the discussion has dealt only briefly with implementation
questions largely because giving these questions more emphasis would go beyond the scope of the project.
Furthermore, our recommendations take implementation feasibility into account. However, with respect to
environment the implementation problems have proven particularly difficult. Accordingly, the team thought it
wise to include both papers here.
i

TABLE OF CONTENTS

GROWTH STRATEGIES THAT PROTECT THE POOR 1


AND THE NATURAL ENVIRONMENT 1
INTRODUCTION: FOUNDATIONS OF A PRO-POOR, PRO-ENVIRONMENT GROWTH
STRATEGY.................................................................................................................1
The Rural Poor are Disproportionately Dependent on Biological Productivity
(Natural Capital) ......................................................................................................1
The Personal Productivity of the Urban Poor is Undermined by Environmental
Damage ....................................................................................................................2
POVERTY-REDUCING ENVIRONMENTAL MEASURES PROMOTE ECONOMIC GROWTH ...........4
Enhancing and Protecting Biological Productivity Promotes Economic Growth ...4
Enhancing Personal Productivity through Environmental Health Measures
Raises Earnings and Income ....................................................................................5
ELEMENTS OF A PRO-POOR, PRO-ENVIRONMENT GROWTH STRATEGY ................................6
The Basic Conditions...............................................................................................6
Strategic Interventions ...........................................................................................10
REFERENCES .......................................................................................................................11

ENVIRONMENT AND POVERTY: PRACTICAL CHALLENGES TO A


SUSTAINABLE RELATIONSHIP 13
INTRODUCTION ...................................................................................................................13
Examples of Failure at the Implementation Stage .................................................13
CONSIDERATIONS FOR THE PRACTITIONER .........................................................................15

Deliverable 18: Pro-Poor Growth and the Environment


1

GROWTH STRATEGIES THAT PROTECT THE POOR


AND THE NATURAL ENVIRONMENT
by Robert Repetto

INTRODUCTION: FOUNDATIONS OF A PRO-POOR, PRO-ENVIRONMENT GROWTH STRATEGY

The Rural Poor are Disproportionately Dependent on Biological Productivity


(Natural Capital)

Most of the world's extremely poor people live in rural areas. In the low-income countries of
Asia and Sub-Saharan Africa in which most such households are found, a large percentage of the
population is still rural and rates of extreme poverty are higher in rural than in urban areas. In
Bangladesh, for example, in the mid-1990s the extreme poverty rate was 39.8 percent in rural
areas, 14.3 in urban areas. In Nigeria, it was 36.4 percent and 30.4 percent respectively (World
Bank, 2001). Only in Latin America, which holds only a small fraction of the world's extremely
poor households, has this pattern been reversed through migration: most of the population lives
in urban areas and urban poverty rates are as high or higher than rural rates.

Of those poor households living in rural areas, a large proportion occupy marginal areas, such as
arid and rainfed semi-arid lands, steeply sloped and mountainous regions, jungles, forests, and
marshes. These areas have limited agricultural potential and have typically received less
attention from agricultural development programs than have the more favored regions. Partly as
a consequence, the technological options available for sustained increases in productivity have
been more limited. The approximately 1.3 billion people living in those regions of the
developing world include a large fraction of the world's poor.

In addition to whatever household lands they may possess, the rural poor are disproportionately
dependent on common lands and resources for a significant range and amount of their basic
needs. These common property resources include forage and fodder for livestock, fuelwood and
kindling, building materials, foodstuffs gathered from field, forest and streams, and raw materials
for handicraft production. According to detailed survey data collected in Western India by N.S.
Jodha in the 1980s, such households may obtain 20-25 percent of their annual real incomes from
these common property resources (Jodha, 1986). A more recent study in Southern Africa
confirms this finding and demonstrates that the more poor or the more nearly landless the
household, the more dependent is it likely to be on such uncultivated resources as a supplement
to rural wage labor (Cavendish, 1999). Women are especially burdened by time-consuming
resource harvesting and gathering from over-exploited environments. Even the urban poor may
be considerably dependent on such resources for charcoal and other household necessities.

Poor rural household thus depend heavily on biological productivity in agriculture and in
uncultivated natural environments. Biological productivity is of such major importance to poor
households in rural areas because they lack the financial ability to invest in other sources of
productivity, such as irrigation, fertilizers, land improvements, farm machinery, commercial

Deliverable 18: Pro-Poor Growth and the Environment


2

fuels, and the like. Consequently, when biological productivity in a vulnerable region declines
through over-exploitation, better-off households are more likely to adapt by substituting other
resources while poor households are more likely to remain dependent on a dwindling natural
resource, perhaps entering into a downward spiral of poverty and resource degradation.

Even where the returns on substitutes might be high, credit and capital constraints are more
likely to prevent poor households from making the investment. They have little or no income or
wealth available for investment. They typically lack access to affordable credit, partly because of
their lack of secure title to land or other collateral assets, partly because of their precarious risk
profiles, and partly because of institutional gaps. Moreover, such households tend to have less
favorable access to input subsidies that might be provided through agricultural development
programs to make purchased substitutes more affordable. Such subsidies tend to flow
predominantly to better-off and better-connected (male) farmers with secure land titles and other
assets for collateral, operating in less risky natural environments, such as areas with irrigation or
assured water control. Finally, even when all these obstacles could be overcome, poor rural
households' precarious situation tends to make them relatively risk-averse and therefore reluctant
to take on investments or technologies that are perceived as risky.

Operating with scant resources in marginal environments, the rural poor are disproportionately
vulnerable to natural and man-made fluctuations and disasters, such as droughts, floods, and
population displacements due to military conflicts. Lacking reserves or alternative resources to
tide them over, these households can be soon driven to extremes of want and deprivation.
(Albala-Betrand, 1993) One result can be a desperate exploitation of whatever biological
resources remain available in an effort to survive. Natural and man-made disasters can
precipitate a downward spiral of poverty and natural resource depletion that persists long after
the disaster itself.

The Personal Productivity of the Urban Poor is Undermined by Environmental


Damage

If the rural poor are disproportionately dependent on the biological productivity of natural
environments, the urban poor are no less vulnerable to loss of productivity through
environmental degradation. The key point is that the urban poor are overwhelmingly dependent
for their living on their own personal productivity. They have virtually no financial or real assets
and indeed are likely to have negative net worth through indebtedness. Moreover, with relatively
high rates of illiteracy, especially among women, and low levels of educational attainment, they
have very limited human capital either. The urban poor depend predominantly on unskilled and
semi-skilled labor earnings. They tend to work in the informal sector in street vending and
hauling, petty construction, in small service, fabrication, and repair stalls, and in small-scale
manufacturing. If they become sick or disabled and their ability to work is impaired, their
earnings and incomes suffer immediately and proportionately. There are no safety nets or
cushions for the urban poor in developing countries except the earnings of other, equally
vulnerable household members.

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The urban working poor are highly exposed to environmental threats to health. Their workplaces
are often the street itself, extremely polluted by vehicle and industrial exhausts, dusts and wastes.
The stalls, sheds, construction sites and other workplaces of the urban poor are typically in the
most congested, least ventilated, most poorly sited parts of the cities and lack any sort of
environmental controls. They are highly exposed to whatever pollutants and toxins are released,
often in high concentrations, into the air, the drains, and the waste dumps of these urban work
environments.

Nor do their residential environments provide relief. The urban poor cluster in low-income
neighborhoods lacking adequate sewerage and waste collection, and often lacking adequate
protected water supplies as well. Low-income neighborhoods often abut industrial areas,
highways, railway lines, drainages and other undesirable zones. Housing is often makeshift and
offers inadequate protection or ventilation, so people spend a large part of the time outdoors in
polluted neighborhoods, although women may be highly exposed to indoor air pollution when
cooking. Consequently, exposure is high to environmental toxins both in work and residential
environments.

Given these high exposures, the urban poor suffer a heavy environmental health burden,
including assaults from biological disease agents, chemical agents, disease vectors, accidents and
safety hazards. Across all least-developed countries, these factors result in an estimated 20
percent of all disability-adjusted lost years (DALYs) for poor and non-poor together, but rates
for the poor are obviously higher. Moreover, such estimates ignore interactions with other
prevalent health risks (Bojo et al., 2001). High burdens of parasitic and infectious diseases,
compromised immunity, and poor nutrition react synergistically with environmental exposures
(Chivian et al., 1993). Exposure to air pollution, for example, is far more damaging to people
suffering from respiratory infections. Parasitic diseases severely impair their ability to absorb
nutrients, exacerbating nutritional deficiencies and further weakening immune system defenses
to other environmental assaults. Taking these interactions into account, environmental factors are
largely responsible for the stunningly high levels of morbidity found among the urban poor.

Oftentimes, from necessity, the urban poor continue to work despite this burden of morbidity but
illness, whether disabling or not, undermines personal productivity, saps energy, and impairs
people's ability to earn a livelihood through their own labor, initiative, and efforts. Even when
continuing to work through chronic illness, according to studies in Africa, people's personal
productivity is depressed by as much as 10-12 percent, with important implications for income.
High levels of morbidity among women are also highly damaging to household productivity
whether the women are engaged in household or paid labor. Moreover, chronic, long-term
poverty is perpetuated when children's sickness undermines attendance and success in school,
increases drop-out rates, inhibits the acquisition of human educational capital, and leads to inter-
generational perpetuation of poverty.

Low productivity implies low income, both in rural areas where biological productivity is low
because of environmental degradation, and in urban areas where personal productivity is low
because of disease and ill health aggravated by environmental threats. Raising productivity in
these settings translates into higher incomes and poverty reduction. Moreover, a vicious circle of
poverty and environmental decay can be converted into a virtuous circle. Gains in income have

Deliverable 18: Pro-Poor Growth and the Environment


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considerably more impact on health improvements among the poor than among the rich.
(Deaton, 2003) To the extent that the rural and urban poor are disproportionately dependent,
respectively, on biological productivity and personal productivity, they will derive higher real
incomes through productivity enhancements.

POVERTY-REDUCING ENVIRONMENTAL MEASURES PROMOTE ECONOMIC GROWTH

Enhancing and Protecting Biological Productivity Promotes Economic Growth

Income is rightly understood as the return on various types of productive capital: financial
capital, physical reproducible capital such as buildings and equipment, human capital such as
education and skills, social capital such as functioning institutions and norms, and natural capital
such as productive lands, waters, biological resources, and minerals. With varying weights and
degrees of substitutability, these capital stocks enter into the production functions of a country's
economic sectors, and so determine the country's aggregate production possibilities.

According to World Bank estimates, in many low-income countries, natural capital is the largest
single form of wealth, larger than any of the others. (Dixon and Hamilton, 1996)
Correspondingly, natural capital provides a large share of employment through work in
agriculture, forestry, fishing and mining; a large share of income; and a large share of foreign
exchange earnings through commodity exports. In India in the 1990s, for example, agriculture
generated 28 percent of GDP; in Uganda, 44 percent. Therefore, in low-income countries, the
natural environment is properly understood not as a kind of consumer amenity, as it is in rich
countries where the primary sector has shrunk in economic importance, but rather as a kind of
producer good, an important form of productive capital.

Sustained, widely-shared economic growth is rarely achieved without improvements in


agricultural productivity. Maintaining natural capital by preventing the deterioration of
biological productivity greatly enhances potential sustainable yields and incomes. Substituting
for impaired biological productivity through alternative investments can be expensive. For
example, where irrigated soils have lost productivity through salinization, replacing them
through new irrigation works or restoring them through desalinization programs can encounter
much higher costs. Where soil productivity has been reduced through erosion of topsoil,
restoration of yields with chemical fertilizer can be costly and may encounter biological
limitations. Destruction or degradation of forests and fisheries also entails productivity losses
that are difficult and expensive to rectify. Though the quantification of natural capital in most
countries, especially low-income countries, has been inadequate, studies in several have found
that losses of natural capital have offset substantial fractions of economic growth over periods of
decades, negating the proposition that economic growth can be sustained by depleting the
resource base. In Costa Rica, for example, it was found that depletion of natural capital
averaged 5 percent of GDP annually over a 20 year period (Solarzano et al., 1991). Rather,
maintaining or enhancing natural capital as an important income-generating portfolio of
productive assets can provide a foundation for economic growth and income gains for the poor.

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Enhancing Personal Productivity through Environmental Health Measures Raises


Earnings and Income

There have been recently been efforts to quantify the overall economic consequences of
environmental health damages in developing countries. Those that have been undertaken point
toward the conclusion that the impacts have been important. Studies in China, for example,
suggested that the costs of environmental damages, mainly in the form of health damages, were
in the range of 5-8 percent of GDP annually (Johnson et al., 1997). This represents a major
constraint on sustained economic growth as well as a burden that falls disproportionately on the
country's poor. Studies in Africa also have found that disease, with a major environmental health
component, represents a highly significant constraint on economic growth, partly through its
effects on labor supply and labor productivity and partly through longer-term impacts on human
capital formation. (Sachs, 1999)

Health systems in many low-income countries have failed to intervene effectively in the poverty-
health nexus, whether due to a bias in favor of urban clinical services or a bias against certain
regions, ethnic groups, or economic classes. Nonetheless, studies have shown that a basic low-
cost intervention "package" within the means of low-income countries could save lives and avoid
economic losses with an extremely favorable benefit-cost profile exceeding 10:1. Environmental
health interventions have been found that offer favorable economic benefit-cost profiles,
indicating that interventions that reduce the burden of disease on poor households can also
contribute to economic growth. (Commission on Macroeconomics and Health, 2001) Vector
control programs, investments in sanitation and support for improved cooking stoves are
examples of environmental health programs with favorable economic benefit-cost characteristics
in many countries.

Significant reductions in urban pollution can also be achieved with low-cost measures and
favorable benefit-cost profiles, contributing to economic growth as well as personal
productivity. For example, in many countries, eliminating lead from motor vehicle fuels has
removed a major source of toxic exposure at minimal economic cost. Because of technological
inefficiencies in production processes in low-income countries, it is oftentimes possible to
identify technical improvements that result in significant reductions in pollution and
environmental damages while virtually paying for themselves in materials, energy, or water
savings. Improved maintenance of urban bus fleets improves fuel efficiency, extends engine life,
and reduces street-level urban pollution. Consequently, the claim that low-income countries
must sacrifice environmental protection for the sake of economic growth does not hold up to
careful scrutiny. On the contrary, well-considered measures to protect and enhance natural
resource and environmental capital can contribute substantially to economic growth and poverty
reduction.

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ELEMENTS OF A PRO-POOR, PRO-ENVIRONMENT GROWTH STRATEGY

The Basic Conditions

Stability

It has been found the macroeconomic growth of itself is effective in reducing poverty. However,
the impact of growth on poverty alleviation is greater if certain conditions are met to ensure that
the benefits of growth are broadly shared. Similarly, in many respects, economic growth can
have favorable effects on the environment, the more so if certain conditions are met to ensure
that growth does not involve a rapid depletion of natural capital. Those sets of conditions
combine to describe a general framework of sustainable and equitable economic development.
Some major elements of that framework are indicated in this section. The framework might be
imagined as a triangle, with a base of basic development conditions and an apex of targeted
policy interventions.

At the most basic is maintenance of political and macroeconomic stability within a predictable
legal system that allows a reasonable degree of public participation. Episodes of political and
macroeconomic instability weigh heavily on the poor, because of their vulnerability and
insecurity. Moreover, such instability usually aggravates environmental damage when restraints
on resource exploitation by the powerful are relaxed and the poor, often as political or economic
refugees, are driven to unsustainable resource uses as survival strategies. The Asian financial
crisis in such countries as Indonesia and the Philippines resulted in increases in poverty and
acceleration of environmental damages, illustrating both processes.

Secure Property Rights

The legal and governance system consistent with sustainable and equitable development must
provide security against invasions of property rights of all kinds while at the same time allowing
productive capital to be reallocated to more valuable uses. Effective security of private property
rights in urban and rural land and resources is necessary to provide owners with incentives to
invest and conserve those resources for future uses. It has been found repeatedly that land titling,
registration, and enforcement of property rights against encroachment encourages investments in
land improvement, reforestation, and agricultural intensification, just as deforestation is
encouraged if made a criterion for the confirmation of ownership. (Feder, 1987) Along with
security of rights, however, the legal framework must prevent insuperable barriers to the transfer
of resources, especially land, that would deny the poor opportunities to acquire land and utilize it
more productively. Moreover, the initial allocation of private property rights can have major
implications for the alleviation of poverty. For example, the assignment of rights to groundwater
to the surface landowner, as has occurred in many countries, has affected the rural distribution of
wealth and income.

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In addition to individual property rights, the legal and governance framework should secure other
kinds of property, such as communal property rights. Community rights to land, water, and
forests should be made secure against encroachments by individuals, corporations, or agencies of
government. With such assurance, communities are much more likely to manage the resources
under their control for sustainability than they would if they lack assurance regarding future
benefits or control.

Not less important, the legal and governance framework should secure the effective rights to
public property, including natural resources in the public estate and public goods under
government control. Illustrating the former, forests, protected areas, and marine areas in the
public estate must be made secure against unlawful encroachment, which would almost
invariably be unsustainably exploitative. Use of those resources must be regulated in ways that
promote sustainability and capture a reasonable share of the resource value for public uses. In
order to achieve this result, governments must invest to improve their resource management and
stewardship capabilities. Effective governance of the public estate is typically beyond the
capability of the national government, so the governance framework should devolve effective
ownership and control over a significant portion of the natural resource estate to local and
regional levels of government.

Public goods under government control typically include the air, major inland water bodies, and
the near-shore oceans and seas. A sustainable governance framework must prevent unrestrained
"takings" of these resources for waste disposal sites and other exploitative uses. Otherwise, these
important resources would inevitably be severely degraded by pollution, with the adverse
impacts on health and natural capital discussed above. Therefore, the basic framework includes
at appropriate levels of government a system of enforceable limitations on the release of
pollutants into air, water, and public lands. These are several aspects of a framework to ensure
security of property rights.

Appropriate Market Incentives

Governments typically exert considerable influence over economic incentives, not only through
taxes and public expenditures, but also through all manner of market interventions. Such
interventions oftentimes work to the disadvantage of the poor and to the disadvantage of the
environment. Interventions that bias market incentives against employment are particularly
damaging to the poor, who rely principally on wage earnings. Such interventions include capital
and non-targeted credit subsidies, relatively heavy protection for capital-intensive industries, and
policy biases against agriculture—usually a relatively labor-intensive sector. These policy biases
against employment often have adverse environmental implications as well: capital-intensive
industries and technologies tend to be more energy-intensive and polluting than labor-intensive
industries and technologies. Within the agricultural sector, subsidies to energy, agricultural
chemicals, water and credit have often been directed mainly to well-endowed regions and better-
off farmers, to the detriment of poorer farmers in marginal areas who must compete with the
former in output markets without equal benefit of input subsidies. Such agricultural input
subsidies have also produced adverse environmental effects by encouraging inefficient use of
water, chemicals, and other inputs.

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Natural resource subsidies are prevalent in many developing countries, creating incentives for
more intensive natural resource use, often with adverse environmental effects. Fossil energy
subsidies, though in some contexts encouraging substitution of fossil for scarce biomass fuels,
encourage inefficient energy uses and additional pollution. Such subsidies are also typically
regressive in low-income countries because poor households spend little on commercial fuels,
even relative to household income. Irrigation subsidies have encouraged inefficient water use,
with adverse environmental impacts in some regions such as salinization and groundwater
depletion. Those subsidies have disproportionately benefited better-off farmers. Under-pricing of
other natural resources, such as forestry concessions in public forests, has contributed to
unsustainable and inefficient uses of those resources, the benefits accruing mainly to the favored
concessionaires. Overall, natural resource subsidies have typically resulted in environmental
damages and unsustainable patterns of resource use, while contributing little or nothing to
poverty alleviation. Since subsidies imply a revenue loss that must be offset by other revenue
sources, many of which are regressive in impact, their poverty impact is particularly suspect. An
appropriate basic framework would price natural resources in accordance with their use and
conservation values.

Appropriate Taxation

A tax framework conducive to economic growth would impose the least possible burden on the
economy; i.e., it would introduce the least distortion into market equilibria consistent with
meeting the revenue requirements. Therefore, to the extent possible, such a tax framework would
first fully exploit the possibilities of raising revenues through corrective taxes on goods and
processes that generate negative environmental and health externalities: taxes on polluting goods,
tobacco, etc. Such taxes do not introduce market distortions but rather reduce them by
discouraging activities that generate external costs and thereby improve market efficiency.
Excise taxes on polluting goods, such as high-sulfur fuels, are easier to administer than taxes on
emissions directly.

Having exploited these possibilities, a least-burdensome tax framework would then, to the extent
possible, raise revenues through taxes on rents, including resource rents, because such taxes have
a neutral effect on market processes. They do not effect market equilibria. Such revenue sources
include appropriate charges for the use of public resources, such as timber resources, water, and
offshore fishing concessions within the country's exclusive economic zone. Taxes on resource
rents can discourage the pernicious rent-seeking behavior and incentives to corruption in
resource management that have been major problems in many countries and, in this way,
encourage sustainable economic development. Rent taxes include land taxes, which can be
progressive in countries with skewed land distribution, and which can discourage land-holding
for speculative or other non-productive purposes, increasing poor farmers' access to land.

Since these revenue source are unlikely by themselves to meet a country's full revenue
requirements, the final component of a least burdensome tax system would be a broad-based,
undifferentiated tax at a relatively uniform rate, such as a sales, value added, or foreign trade tax.
Such a tax can be made more progressive by limited exemptions for items used predominantly
by the poor while at the same time introducing the least possible excess burden on the economy.

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In summary, a tax framework that encourages efficient resource and labor use and spreads the
fiscal burden equitably is a component of the fundamental legal and governance framework.

Adjustment to an Appropriate Framework

Of course, no country fully meets these conditions for sustainable and equitable economic
growth, and few even come close. Consequently, structural adjustment programs have been and
will continue to be a significant feature of the policy landscape in the developing world.
Experience has demonstrated that the design of the adjustment process itself has important
implications for poverty and the environment. Appropriate design and sequencing of elements of
the adjustment process is crucial lest the process aggravate the conditions of poverty and
environmental degradation for considerable periods of time and perhaps irreversibly.

Structural adjustment programs typically aim to restore macroeconomic balance and to


rationalize market incentives, in order to promote more efficient resource use and create
conditions for economic growth to resume. Restoring macroeconomic balance often requires a
temporary reduction in domestic expenditure, which, in the absence of safeguards, may
substantially reduce income and employment of the poor. Not only does this exacerbate poverty,
it also often leads to intensified overuse of communal resources. It was found in the Philippines
that structural adjustment drastically slowed migration into metropolitan areas where
unemployment rose and sharply increased migration into fragile uplands for purposes of
subsistence farming. Destructive artisanal fishing of coral reefs also increased. (Cruz and
Repetto, 1992) It is possible, though rare, for countries to concentrate expenditure reductions on
upper income classes who account for the large majority of domestic spending, protecting the
poor through targeted subsidies, works programs, and other measures.

Structural adjustment programs often aim to improve incentives for foreign exchange earning
and saving through trade regime and investment regime reform. Sequencing of these adjustments
has important implications for poverty and the environment. In order to protect against poverty
increases and higher unemployment, the incentives to increase output of tradables must be put
into operation before domestic expenditures are reduced (Stiglitz, 2002). However, the
composition of a country's exportable goods may well include natural-resource commodities
such as fish, minerals, or timber. If incentives to produce and export such goods are substantially
improved before safeguards are in place to ensure sustainable and environmentally sound
harvesting, serious environmental damages may result. This has happened in several countries,
including Indonesia, Chile and Peru. The structural adjustment design should encompass the
creation of limitations on resource and environmental exploitation before incentives are sharply
increased to raise production of resource-intensive and environmentally sensitive commodities.
This has rarely happened. Typically, designers of the adjustment program have resisted "unduly"
complicating it with environmental components. As a result, the adjustment process has been
unnecessarily harmful to the environment as well as to the poor.

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Strategic Interventions

The preceding discussion has pointed in the direction a number of targeted interventions suitable
for donor support, in that they involve relatively small costs and large potential payoffs. This
paper concludes with a brief outline of strategic interventions. Naturally, the opportunities
below are suggestive and not exhaustive of the opportunities.

ƒ Legal reforms: Support for efforts to define more clearly community resource rights; to
improve equitable access of the poor to the legal system; to improve the ability of private and
public parties to sue for compensation of environmental damages or non-compliance with
environmental laws.

ƒ Land titling and registration programs: Support for accelerated programs to regularize
title to rural and urban land.

ƒ Capacity-building in natural resource management agencies: Support for efforts to


strengthen the capacities of governmental agencies at local, regional and national level
responsible for managing natural resources in the public estate, including training in working
with communities.

ƒ Capacity-building in environmental protection agencies: Support for efforts to improve


the capabilities of environmental protection agencies to carry out standard-setting,
permitting, monitoring, enforcement and public communications activities.

ƒ Incentive reform: Support for policy analysis of incentive reform issues by in-country
academic institutions, research organizations, and public agencies.

ƒ Tax reform: Support for in-country efforts to improve the efficiency, equity and
environmental sensitivity of tax design and administration, including measures to tax and
collect resource rents.

ƒ Community resource management: Support for programs aimed at strengthening


community forestry, irrigation, fisheries, and watershed rehabilitation.

ƒ Agricultural research and extension: Support for agricultural research and extension
programs targeted at marginal and fragile lands, such as drylands and uplands.

ƒ Urban environmental improvement: Support for low-cost sanitation, water supply and
waste management programs targeted on low-income neighborhoods.

ƒ Environmental partnerships: Support for programs to facilitate the effective transfer and
diffusion of energy-efficient and pollution-preventing technologies.

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REFERENCES

Albala-Betrand, J.M. Political Economy of Large Natural Disasters, With Special Reference to
Developing Countries. (Clarendon Press, Oxford) 1993.

Bojo, J., J. Bucknall, K. Hamilton, N. Kishor, C. Kraus, and P. Pillai, Poverty Reduction
Strategies: Environment, World Bank, 2001

Cavendish, William L. Empirical Regularities in the Poverty-environment Relationship of


African Rural Households. Center for the Study of African Economies. Working Paper Series
99-21. London, 1999.

Chivian, Eric S, Michael McCally, Howard Hu and Andrew Haines, Critical Condition: Human
Health and the Environment. (MIT Press: Cambridge, M), 1993.

Cruz, Wilfrido and Repetto, Robert. “The Environmental Effects of Stabilization and Structural
Adjustment Programs: The Philippines Case”, World Resources Institute: Washington, D.C.
1992.

Deaton, Angus "Health, Inequality and Economic Development." Journal of Economic


Literature, March 2003.

Dixon, John and Kirk Hamilton, "Expanding the Measure of Wealth", Finance and Development,
December, 1996

Feder, Gershon, "Land Ownership, Productivity and Farm Productivity: Evidence from Rural
Thailand. Journal of Development Studies, Vol. 24, No. 1, 1987.

Jodha, N.S. Common Property Resources and Rural Poor in Dry Regions of India. Economic
and Political Weekly Vol. XXl, No. 27, July 5, pp. 1169-1181.

Johnson, T., Liu, M. and Newfarmer, R., Clear Water, Blue Skies: China's Environment in the
New Century, World Bank Report No. 17089 (ISBN 0-8213-4044-1) World Bank: Washington,
D.C. 1997.
“Macroeconomics and Health: Investing in Health for Economic Development”, A Report of the
Commission on Macroeconomics and Health, World Health Organization, Geneva, December
2001.

Sachs, Jeffrey and Hamoudi, Amar, “Economic Consequences of Health Status: A Review of the
Evidence”, Center for International Development at Harvard University, CID Working Paper No.
30, Cambridge, December 1999.
Solorzano, A. et al, "Accounts Overdue: Natural Resource Depreciation in Costa Rica. WRI
Publications Brief (World Resources Institute: Washington, D.C.) December, 1991.

Stiglitz, Joseph, Globalization and its Discontents, Norton, 2002.

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ENVIRONMENT AND POVERTY: PRACTICAL CHALLENGES TO A


SUSTAINABLE RELATIONSHIP
by Federico S. Fische

INTRODUCTION

Identifying policies and programs that encourage pro-poor growth and are at the same time
beneficial to the environment requires that both the designer and the implementer have more than
the usual number of constraints in mind. Identifying pro-poor growth policies and programs
becomes more complicated when the environmental aspect is added. Not surprisingly, therefore,
the failures at the implementation stage are many. This paper first gives several concrete
examples of such failures and then highlights concerns that the practitioner should bear in mind.

Examples of Failure at the Implementation Stage

It is not difficult to find success stories within the broad area of poverty and environment. The
challenge lies in the replication of such experiences. Too often public and private organizations
meet with limited success. A main factor in such difficulties is the inadequate recognition that
solutions are location specific and that the human factor (e.g., individuals, groups of citizens,
companies, institutions, etc.) is key. The following examples1 illustrate these challenges:

1. Concepts and language outrun capacity. The Bruntland Commission Report changed the
terminology used by the donor community, introducing phrases such as “stakeholder
participation”, “sustainability”, “environmentally sound” and “poverty reduction”. There is
evidence of a gap between the conceptual work and program design on the one hand and
implementation on the other.

Concept Missing Activities


One of the development banks prepared a ƒ Assistance to the farmers or communities to help
program for sustainable forestry in protected them with the commercialization of the boards
areas for one poor developing country. All of the they produce was lacking. Unless they are
boilerplate language is to be found in the quickly able to sell the boards, they will be unable
documentation of the program. Environmental and to repay their loans.
forestry-friendly logging techniques are to be ƒ Information on how the market for forest products
promoted and transferred. Local farmers and behaves in the country was not provided. The
communities are expected to benefit from the farmers are very vulnerable to third party
small-scale production of boards. The program interventions that take advantage of their lack of
establishes a revolving fund from which farmers bargaining power.
can borrow to introduce these proven techniques. ƒ The program is implemented in a protected area;
As required by the bank’s procedures and no new routes can be constructed to support the
regulations, the proper environmental impact transportation of logs and boards out of the area.
analysis has been undertaken. The wood either stays in the protected areas or
faces costly delays to be shipped out.

1
The examples presented under each topic are taken from actual situations. The reader can request specific
information on each case from the author.

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2. Stakeholder participation. Participatory processes that function as a leveling force across


the spectrum of society are key to empowering and engaging stakeholders. Proper
participatory process provides a unique input in the design-to-execution process, empowers
the stakeholder and properly takes into account human behavior, gender and culture. Too
many projects developed by the donor community, especially the international financial
institutions, build their design-to-execution process using top-down mechanisms. This is a
result of internal procedures of the donor organizations that lead them to mainly deal with
government counterparts2. This usually means that most of the decision-making is done at
the top and the management of the funding does not fall to the stakeholders whom the
intervention is designed to benefit. Top-down decisions usually result in supply side
programs that fail to commit all the parties, do not properly empower the stakeholders
(especially where it is important to counteract the influence of powerful opposing groups),
and may have little to do with the reality (needs, constraints, behavior patterns) of the
stakeholders.

Project Major Fallouts


One regional organization, dealing with ƒ A new technology was introduced without prior
technology development and transfer, designed input from stakeholders
an efficient stove3 for rural and poor households. ƒ The regional organization failed to understand
the living conditions of the users and how the
A pilot program called for the distribution and new stoves would impact their household
installation of these stoves in different ƒ The organization ran out of money, was
communities. After a couple of months, the therefore unable to adapt its approach, and
organization sent out experts to survey the users thus lost the confidence of the potential
about their experience with the new stove and beneficiaries
verify the projected benefits (savings of fuelwood ƒ A participatory design-to-execution project
and reduction of in-house air pollution affecting would foresee the challenges and:
mostly women and children). - Introduce complementary technology to
improve living conditions
To their surprise, the experts found that most of - Properly budget the pilot project to have
the people had used the new stoves for only a monies left for changes in the design or
very short period of time. The new stoves had installation of the stoves
failed both to keep mosquitoes and flies out of the - Commit the beneficiaries to the continuity
house, and to maintain the build-up of creosote in of the project and reduce their reluctance to
the straw roofs, whose lack led to water leaks. change
The project was terminated.

3. Supplying a tool or basic service is not a solution by itself. Many programs focus on
supplying access to basic services for the poor, but with little or no consideration of either
technology issues or the productive and non-productive needs of the community. These
services, and the technologies associated with them, must be appropriate to the site, resources
and culture of the users. They should be complemented with the transfer of information on
use, maintenance, risks and benefits, all adapted to the specific group of beneficiaries/users.
Often this last condition is not satisfied.

2
For example, a representative of a donor travels to a country, meets with different government officials and other
economic/political/social representatives, and returns with a list of priorities. Sometimes this shopping list is
received from a Government Agency without even the exploratory trip.
3
Less wood to generate thermal energy and a chimney to take the smoke outside the house.

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Basic Service Supply Major Fallouts


The provision of energy to poor rural or urban ƒ The standard predicted household energy
communities is mostly done through usage is applied regardless of the power
environmentally friendly technologies; the most source (renewable or traditional) or whether
frequent is photovoltaic, but biomass and water provided through a mini-grid or distributed (off
based technologies are also used. Energy needs the grid). Unfortunately, this practice flies in the
per family are estimated in terms of an face of the overwhelming evidence that once a
internationally accepted standard measure in light family gains access to power, energy demand
bulbs (either one or two 40 watts bulb/s) and an increases exponentially.
appliance. ƒ Access to energy creates the desire for more
consumer goods and hence more electricity:
additional lights, appliances, TVs and radios.4
ƒ The whole process generates undesired
secondary effects like security problems
(robberies), water contamination (due to
misuse/disposal of batteries) and cultural
changes in the local and indigenous
communities.

CONSIDERATIONS FOR THE PRACTITIONER

Some of the examples presented here illustrate more than one type of implementation problem.
The presence of implementation problems will ultimately determine whether a program is
sustainable and has achievable goals.

1. Conducting Cost/Benefit Analysis. Underestimating cost and overestimating benefits is one


of the most common mistakes. Costs tend to be underestimated partly out of inadvertent
failure to include all the elements involved and partly out of a deliberate effort to better
justify the investment. An upward bias in estimated benefits, in the absence of proper
analysis, is a frequent result of the electoral process.

2. Balancing Distribution of the resources among stages of the project: that is, among
original implementation, follow-up and modification, and evaluation; and between the final
“beneficiaries” and the implementers (administrative costs, consultant fees, etc.). The most
important single issue is how much reaches the alleged beneficiaries of the project.

3. Minimizing Negative Externalities and other Undesired Effects. Failure to predict and
take account of negative externalities reflects a lack of understanding with respect to players,
needs and resources. The forestry example involved a failure to recognize the basic market
structure within which the farmers would have to operate.

4. Taking full advantage of lessons from the past and present. It is very common that once a
project definition/concept is approved, both the donor and the implementing agencies run the

4
It very common that the initial reaction to the presence of electricity is an increase in the demand for consumer
goods, rather than for sewing machines, power tools or other means of productive use of energy. Consumption
uses can squeeze out productive ones for an extended period, especially if the supply of electricity is limited.

Deliverable 18: Pro-Poor Growth and the Environment


16

project development and implementation process through their “standardized” procedures.


This frequently means business as usual, most likely by focusing on what is trendy or by
adopting programs that “work in other places.” Unfortunately most of the time this is done
with insufficient awareness of the need to adapt to the new setting/circumstance or of
whether the model is indeed working well elsewhere. At the other extreme, some agencies
suffer from starting over, undervaluing the relevance of similar experiences. Effective
implementation involves striking a balance between recognition of what is unique to a given
setting and at the same time taking advantage of the best practices learned in similar
experiences elsewhere.

5. Linking institutions. Both formal and informal institutions play a fundamental role in
whether the implementation of interventions is a success or a failure. Positive institutional
performances at the micro level (e.g. rural communities, micro-enterprises, etc.) can create
win-win situations, improving the well-being of the community both in economic and
environmental terms. Current governance initiatives include an ongoing effort to modernize
and strengthen the formal institutions of federal, provincial and municipal government.
Although some good things are thus happening at the top and at the bottom, effective public-
private partnerships are still rare. From the environmental point of view, a desirable
integration is missing with respect to the control of pollution and environmental degradation
in general. Clean production initiatives5 are generally more successful in first tier companies6,
while community-driven initiatives are more successful at the grass roots levels. Much of the
time these initiatives never meet. Small and medium enterprises, with their great potential as
employers of lower-skilled labor, are seldom integrated into these initiatives.

6. Promoting inclusive consensus building. There is a need for an inclusive consensus


building mechanism to prioritize interventions. It is driven by the increasing need to identify
priorities and interventions for each ecosystem. In the environmental area Agenda 21 is a
process that has proven to be successful at the community level. On the poverty side, the
PRSP process is a first, and much debated, experience that promotes a similar mechanism to
develop poverty reduction programs. Practitioners now need to develop creative ways of
using the tools provided by these processes to generate win-win policies and programs in the
environmental and poverty field.

7. Integrating local resources. Many technologies need to be adapted to the conditions of a


particular place and circumstances. The use of local resources is key to the successful
integration of the technology and its continuing use. Social and cultural considerations
should be seriously considered before suggesting that a community undertake a possible
technology leap. Access to more efficient and cleaner energy and water and the introduction
of sanitary facilities should be done with adequate technologies, accompanied by training for
use and for maintenance. A post-implementation service and maintenance plan should be
developed to avoiding monopolistic situations where individuals or communities are
dependent on a single source for problem-solving or spare parts.

5
Most of the countries currently have clean production initiatives aimed at achieving sustainable production
through energy efficiency programs and through procedures and technologies to reduce pollution at the source.
6
These are companies that, regardless of their size, are the dominant firms in a productive/service sector of a
country or region.

Development Alternatives, Inc.–Boston Institute for Developing Economies


17

8. Recognizing multiple uses. In responding to the basic need of a community, opportunities


can be missed to diversify the options for the poor. For example, a program to implement
better practices for water management should not focus only on securing the supply of
drinking water. Terms of reference for the design and feasibility analysis of such program
should also assess the viability of implementing an associated environmentally sound
program for productive use of water (irrigation, power generation and/or fish/shrimp farms).
A similar argument could be made for energy and waste management programs targeted to
the poor.

9. Reassessing opportunities to generate income when they have a negative impact on


ecosystem integrity7. Such opportunities with negative impacts might include:
ƒ Introducing new source of air and water contaminants such as pesticides and fertilizers, in
situations where their environmental damage is not likely to be controlled;
ƒ Opening roads, creating dams or sanitation facilities in fragile or protected environmental
areas; and
ƒ Promoting unsustainable agricultural and forestry techniques that may further degrade
soils, vegetation, water and natural habitats

10. Not limiting the strategic intervention to the immediate term problem. Medium and
long-term implications of a given intervention should be addressed. Interventions which
focus on non-disaster related short-term issues often leave programs and people unprepared
for undesired or unexpected side effects or setbacks from policies and intervention
implementation.

This brief paper has focused on what the practitioners should take into account during the
design-to implementation process of a project/program that deals directly or indirectly with
environment and poverty. Experience shows that they are not always obvious to those addressing
the practical challenges to sustainable development issues.

7
Unfortunately it is very common to find environmental impact assessments that are more designed to comply with
the institutional/lending requirements than a serious study of the actual environmental costs and benefits that a
proposed project may have on the ecosystem (the relationship between all organisms interacting with the physical
environment in a given place).

Deliverable 18: Pro-Poor Growth and the Environment


The goal of the USAID-funded Pro-Poor Economic Growth Research Studies and Guidance Manual Activity is to identify and

disseminate policies, reforms, and activities that USAID decision makers can incorporate into their programs and that they can

recommend to countries wishing to pursue strongly pro-poor, poverty-reducing, economic growth objectives.

The findings, interpretations, and conclusions expressed in this paper are entirely those of the author. They do not necessarily

represent the views of USAID.

Development Alternatives, Inc.


7250 Woodmont Avenue, Suite 200
Bethesda, Maryland 20814 USA

301-718-8699 info@dai.com www.dai.com U.S. Agency for International Development


Bureau for Economic Growth, Agriculture, and Trade
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Washington, D.C. 20523

www.usaid.gov

BIDE
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