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Financial Intermediation and Employment

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  • Manoj Pant

    () (Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi)

  • Prabal Roy Chowdhury

    () (Indian Statistical Institute (ISI), Delhi Centre.)

  • Gurbachan Singh

    () (Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi)

Abstract

In our model, there are entrepreneurs and other agents. The latter have labour and capital, but no entrepreneurship. They are employed for a wage, or they are self-employed (which is inefficient). If they are employed for a wage, they invest their capital in financial assets. Otherwise, they take up self-employment, which requires capital and leaves little scope for buying financial assets. It can then be shown that investment in financial assets and wage employment are positively correlated. The model helps explain why a small financial system and low wage employment are observed in less developed countries that have high cost of financial intermediation.

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Bibliographic Info

Paper provided by Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India in its series Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers with number 09-08.

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Length: 29 pages
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Handle: RePEc:ind:citdwp:09-08

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Web page: http://www.jnu.ac.in/Academics/Schools/SchoolOfInternationalStudies/CITD/
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  1. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers 2549, C.E.P.R. Discussion Papers.
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  9. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
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  11. Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer & Robert W. Vishny, 1999. "Investor Protection and Corporate Valuation," NBER Working Papers 7403, National Bureau of Economic Research, Inc.
  12. Fallon, Peter R. & Lucas, Robert E. B., 1993. "Job security regulations and the dynamic demand for industrial labor in India and Zimbabwe," Journal of Development Economics, Elsevier, vol. 40(2), pages 241-275, April.
  13. Yamada, Gustavo, 1996. "Urban Informal Employment and Self-Employment in Developing Countries: Theory and Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 44(2), pages 289-314, January.
  14. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  15. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
  16. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-52, May.
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