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Finance as a Magnet for the Best and Brightest: Implications for the Real Economy

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  • Christiane Kneer
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    Abstract

    This paper examines how the absorption of talent into the financial sector affects the real sectors in the economy. Based on a sample of 13 countries observed over the period 1980-2005, I show that financial liberalization is associated with skill-upgrading in the financial sector. I exploit variation in financial liberalization across countries and time, and differences in the needs for skilled labour across manufacturing industries to identify the effect of the absorption of talent into finance on real sector outcomes. My evidence suggests that employment of skilled individuals grows disproportionally slower in skill-intensive relative to less skill-intensive industries following financial reform. I also show that financial liberalization decreases labour productivity, total factor productivity and value added growth disproportionally in industries which rely strongly on skilled labour. This is consistent with the idea that financial liberalization hurts non-financial sectors via a brain-drain effect. Among the different dimensions of financial liberalization, especially policies fostering the development of security markets account for this finding.

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    File URL: http://www.dnb.nl/en/binaries/Working%20Paper%20392_tcm47-296166.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 392.

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    Date of creation: Sep 2013
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    Handle: RePEc:dnb:dnbwpp:392

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The brain drain from financial liberalization
      by Economic Logician in Economic Logic on 2013-10-24 14:43:00
    2. Quelles relations entre structure financière et croissance économique ?
      by ? in D'un champ l'autre on 2014-03-12 16:26:00
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    Cited by:
    1. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.

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