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Gender and Its Relevance to Macroeconomic Policy: A Survey Janet G. Stotsky International Monetary Fund Purpose of Study • Assess the relevance of gender differences for macroeconomic policy • Gender differences have long been incorporated into models in development, public finance, and labor economics • Gender differences in a macro context have been examined more recently Issues • Differences in aggregate consumption, investment, and risk taking behavior and in preferences for public sector role • Relationship between women’s economic status and economic growth • Labor market, trade, and financial market developments • IMF and World Bank programs Gender Differences in Behavior and Macroeconomic Outcomes • Gender differences in behavior may influence key macroeconomic outcomes • The analytical underpinnings in microeconomic theory • Household production where time is an important input • Human capital is an important product of the household • Multiple decision makers within the household, thus household members may respond differently to the economic environment and economic policies may affect household members differently Consumption Behavior • Private consumption is the largest component of aggregate demand; thus understanding consumption is key • Permanent income, life cycle model • Consumption behavior via savings and investment is linked to external stability Consumption behavior evidence • Two strands of evidence: • Women have a stronger preference for spending on goods and services that contribute to human capital accumulation of their children and are household necessities • Evidence on this comes from many countries in the developing world Consumption behavior evidence continued • Price and income elasticities differ though differences tend to narrow as income rises • Price elasticities of demand for education (both enrollment and years of schooling) are higher in absolute terms for females than males • Income elasticities also are higher for females than males • Two stage decision: decision to educate and then how much to spend, given the decision is made to educate Implications of Consumption Behavior Differences • Raising the share of spending over which women have control benefits children and raises human capital • It also tends to stabilize spending by increasing the proportion spent on necessities • Price and income elasticity evidence suggests that relative price increases and income declines are more harmful to female access to education and health care Savings and Investment Behavior • Theories of saving include smoothing consumption, bequest and investment motives, precautionary purposes • Savings behavior may reflect a greater degree of uncertainty and a lack of access to formal markets • Women may have greater incentive to save because of their role as home builders, greater life expectancy, and stronger bequest motives • Differential access to financial markets may also influence • Empirical work suggests that as women have greater earnings capacity relative to men, savings increases but evidence is scant Risk Preferences • A number of studies have also examined risk preferences, mainly using developed countries owing to absence of data elsewhere • Women tend to be more risk averse • Risk pooling may also differ and evidence from developing countries • Micro credit evidence suggests women have superior repayment record and use loans more productively Public Choice • A number of studies have examined the impact of giving women the right to vote • Women’s suffrage has led to a greater growth of government and tendency toward greater “liberalism” • Women tend to support greater redistributive spending and public forms of insurance • The economic implications of a larger government role are ambiguous Summing Up Gender Differences in Macroeconomic Behavior • Improving women’s control of household resources may lead to higher levels of human capital spending, more stable consumption behavior, greater investment, and lower risk taking • Increasing women’s political influence may lead to a greater role for redistributive fiscal policies and public insurance • Upshot: more growth and lower risk, though some ambiguities remain Gender Inequalities and Growth: A Simultaneous Relationship • Neoclassical growth theory relates economic growth to capital accumulation • Endogenous growth models allow for a larger set of variables and do not require production to have diminishing returns in inputs • Human capital is an important contributor to higher growth Gender Considerations in Growth Models • Endogenous growth models can incorporate gender considerations through time as an input, education, and human capital accumulation • Evidence suggests that reducing gender inequality leads to higher growth and higher growth leads to reduced gender inequality Gender Inequalities in Education, Health, and Social Capital on Growth • A number of researchers have examined this relationship (Dollar and Gatti, 1999; Knowles et al, 2002; Klasen, 2002) • Generally the finding is that female education leads to higher growth • Inequality leads to an inability to take advantage of beneficial conditions and lower agricultural productivity (Blackden and Bhanu, 1999) • Education, health capital, and governance improve growth and gender equality leads to more education for females (Baldacci et al, 2004) Effect of Economic Growth on Gender Inequalities • Forsythe et al (2000) use panel data to investigate how growth affects gender inequalities • They find a simultaneous relationship, though measurement varies with the specification • A number of UN indexes try to measure gender inequality and relate to level of income Gender Inequalities in Labor and Financial Markets • Unpaid economy is significant • The omission of it in economic models hinders a full assessment of economic changes • The substitution of paid and unpaid labor • The opportunity cost of time • Economic adjustment has implications for time burdens in the household Labor Markets and Export-Oriented Manufacturing • Globalization is changing the world’s economy • Trade liberalization is an important change and has led to the growth of export oriented manufacturing • A number of studies have examined the influence of trade liberalization on the labor market roles of women • The conclusions are that it has has led to greater job growth but ambiguous effects on relative wages Aid Inflows and Macroeconomic Changes • Aid inflows can have differential effects by gender • Aid inflows can put upward pressure on exchange rates • This might be helpful to women trapped in subsistence economy but harmful to those who can benefit from export oriented trade Capital Markets and Financial Liberalization • Financial liberalization is also changing the world’s economy • Financial liberalization is beneficial but can lead to greater instability • Women cannot always benefit if their access to financial markets is limited • Instability may have disproportionately harmful effects on women • Foreign direct investment may lead to more use of subcontractors, including home based with some benefits to women Summing Up Gender Inequalities in Labor and Financial Markets • Removal of impediments to labor force participation is important • Exchange rate changes interact with labor market structures • Financial liberalization has ambiguous effects by increasing access but also increasing instability Gender, Economic Instability, and Adjustment • Macroeconomic fluctuations are pervasive and may lead to fiscal and financial distress • Fiscal austerity is often a by-product of distress, especially to improve external sustainability by reducing domestic demand • Fiscal retrenchment can take different forms, on both revenue and spending side, with differential effects by gender Fiscal Austerity and Gender • Higher fees for government services, especially for health and education, may disproportionately affect females • Tax changes are not gender neutral • Reduction in services may also have differential effects both directly and indirectly through time burdens Labor Market Fluctuations • Labor market fluctuations affect men and women differently • In the U.S., men’s wages exhibit greater procyclicality • Developing country evidence is scarce on this issue • Public sector employment cuts may disproportionately affect women • But women’s private sector employment may be more resilient in a downturn Structural Adjustment • IMF and World Bank structural adjustment has been criticized for being disproportionately harmful to women • The reasons include the fiscal austerity and labor market effects • Important to distinguish short and longer term effects of adjustment programs Structural Adjustment and Exchange Rate Changes • Structural adjustment is often accompanied by exchange rate depreciation which affects the relative profitability of export industries • Where women are mainly limited to subsistence activities, depreciation may be harmful in that they cannot benefit from improved environments for export • If accompanied by fiscal austerity, this can be a double blow Structural Adjustment and Gender • World Bank (2001) examined how gender equality evolved in countries undergoing structural adjustment in the 1980s and early 1990s. Focusing on Sub-Saharan Africa, it found programs did not have outcomes that differed significantly by gender • Another study (Forsythe et al, 2000) found something similar for IMF programs Structural Adjustment and Education • Several studies have examined the effect of structural adjustment on education • Rose (1995) found a negative impact of World Bank programs on female education • Buchmann (1996) found the same for IMF programs Poverty Reduction and Growth Facility • The PRGF was introduced in 1999 • It is intended to increase the emphasis in low-income countries on pro-poor and progrowth policies, fiscal flexibility, and better governance • A 2002 IMF review found that the composition of spending had evolved in pro-poor and pro-growth ways under early PRGF programs Sum Up • Empowering women in the economy can enhance growth and provide stability • There may be less risk taking and greater role for government • Economic growth and gender inequality have a simultaneous relationship and the evidence suggests that growth leads to lower inequality and vice versa Sum Up continued • In countries based on subsistence agriculture, women’s inequality may limit their ability to take full advantage of better macroeconomic and microeconomic conditions • Exchange rate depreciation is harmful to women limited to a subsistence economy Sum Up continued • Where women have opportunities for export oriented industry, these conclusions may be different • Trade liberalization seems to have improved labor conditions for women, but there is more evidence for employment than wages Sum Up continued • Structural adjustment programs should be mindful of the need to provide social safety nets, and to choose an appropriate pace of fiscal adjustment Further Study • Research at the macroeconomic level of gender differences in behavior and their implications • Measuring and quantifying the simultaneous relation between growth and gender inequality • Examining more systematically the gender-disaggregated effects of structural adjustment programs and fiscal policies Implications for International Financial Institutions • Guidance to fiscal, monetary, and structural reform • Removal of arbitrary discrimination against women in legislation where we provide technical assistance, such as tax and financial sector