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The Wealth Effect on New Business Startups in a Developing Economy

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  • ALICE MESNARD
  • MARTIN RAVALLION

Abstract

The paper tests for nonlinearities in the wealth effect on self-employment, as can arise from startup costs or liquidity constraints. Using both nonparametric and parametric methods, we show that the relationship between the probability of a return migrant to Tunisia starting up a business and the stock of his savings repatriated at return is concave for almost the entire range of our data, though we find weak evidence of a convex relationship at very low wealth levels. Our results suggest that the aggregate self-employment rate is an increasing function of aggregate wealth, but a decreasing function of wealth inequality. Copyright (c) The London School of Economics and Political Science 2006.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 73 (2006)
Issue (Month): 291 (08)
Pages: 367-392

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Handle: RePEc:bla:econom:v:73:y:2006:i:291:p:367-392

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  1. Thomas Dunn & Douglas Holtz-Eakin, 1996. "Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links," NBER Working Papers 5622, National Bureau of Economic Research, Inc.
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  5. Alice Mesnard, 2004. "Temporary migration and capital market imperfections," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 242-262, April.
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  7. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
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  15. Lindh, Thomas & Ohlsson, Henry, 1998. "Self-Employment and Wealth Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(1), pages 25-42, March.
  16. Levy, Brian, 1993. "Obstacles to Developing Indigenous Small and Medium Enterprises: An Empirical Assessment," World Bank Economic Review, World Bank Group, vol. 7(1), pages 65-83, January.
  17. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  18. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November.
  19. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April.
  20. Van Praag, C Mirjam & Van Ophem, Hans, 1995. "Determinants of Willingness and Opportunity to Start as an Entrepreneur," Kyklos, Wiley Blackwell, vol. 48(4), pages 513-40.
  21. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
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Citations

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Cited by:
  1. Batista, Catia & Vicente, Pedro C, 2011. "Do Migrants Improve Governance at Home? Evidence from a Voting Experiment," CEPR Discussion Papers 8202, C.E.P.R. Discussion Papers.
  2. Catia Batista & Tara McIndoe- Calder & Pedro C. Vicente, 2014. "Return Migration, Self-Selection and Entrepreneurship in Mozambique," CReAM Discussion Paper Series 1417, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  3. Jackline Wahba & Yves Zenou, 2009. "Out of Sight, Out of Mind: Migration, Entrepreneurship and Social Capital," CReAM Discussion Paper Series 0930, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  4. Ravallion, Martin, 2009. "Why don't we see poverty convergence ?," Policy Research Working Paper Series 4974, The World Bank.
  5. Elisabetta Lodigiani, 2009. "Diaspora Externalities as a Cornerstone of the New Brain Drain Literature," CREA Discussion Paper Series 09-03, Center for Research in Economic Analysis, University of Luxembourg.
  6. Gries, Thomas & Naude, Wim, 2010. "Entrepreneurship, Structural Change and a Global Economic Crisis," Working Paper Series wp2010-57, World Institute for Development Economic Research (UNU-WIDER).
  7. Catia Batista & Pedro C. Vicente, 2007. "Brain Drain or Brain Gain?Micro Evidence from an African Success Story," Economics Series Working Papers 343, University of Oxford, Department of Economics.
  8. Almeida, Rita & Galasso, Emanuela, 2007. "Jump-starting self-employment ? Evidence among welfare participants in Argentina," Policy Research Working Paper Series 4270, The World Bank.
  9. Catia Batista & Aitor Lacuesta & Pedro Vicente, 2009. "Micro evidence of the brain gain hypothesis: The case of Cape Verde," Banco de Espa�a Working Papers 0902, Banco de Espa�a.
  10. Almeida, Rita K. & Galasso, Emanuela, 2010. "Jump-starting Self-employment? Evidence for Welfare Participants in Argentina," World Development, Elsevier, vol. 38(5), pages 742-755, May.
  11. Martin Ravallion, 2012. "Fighting Poverty One Experiment at a Time: Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty : Review Essay," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 103-14, March.

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