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Financial Fragility, Business Creation and Job Destruction

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  • Etienne Wasmer
  • Philippe Weil

Abstract

We build a model of endogenous destruction with credit and labor market imperfections, represented by a matching process between financiers and entrepreneurs on one hand, and entrepreneurs and workers on the other hand. Business creation, credit opening and job destruction represent three active margins of the model. Financial imperfections lead to financial fragility. This implies the existence of a forth latent margin which may be activated in the case of repudiation of financial contracts. This paradigm is applied to the recent development of the U.S. economy. An empirical test in panel of OECD countries further suggests the importance of venture capital for macroeconomic variables.

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File URL: http://spire.sciencespo.fr/hdl:/2441/8983/resources/wasmer-rel-681-0185.pdf
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Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/8983.

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Date of creation: 2002
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Publication status: Published in Louvain Economic Review ; Recherches Economiques de Louvain, 2002, vol. 68, pp.185-202
Handle: RePEc:spo:wpmain:info:hdl:2441/8983

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  1. Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc.
  2. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  3. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, 02.
  4. Daron Acemoglu, 2000. "Credit Market Imperfections and Persistent Unemployment," NBER Working Papers 7938, National Bureau of Economic Research, Inc.
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