I revisit the question of whether entrepreneurs face liquidity constraints in business formation. The principle challenge is that wealth is correlated with unobserved ability, and adequate instruments are often difficult to identify. This paper uses the son’s birth order as an instrument for household wealth. The instrument would likely not be useful in Western data, but it is in many non-Western cultures where primogeniture remains important. I exploit the data available in the Korean Labor and Income Panel Study, and find evidence of liquidity constraints associated with self-employment in South Korea.
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Paper provided by Florida International University, Department of Economics in its series Working Papers with number
0808.
Find related papers by JEL classification: J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
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