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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.

Suggested Citation

  • Alice Mesnard & Martin Ravallion, 2006. "The Wealth Effect on New Business Startups in a Developing Economy," Economica, London School of Economics and Political Science, vol. 73(291), pages 367-392, August.
  • Handle: RePEc:bla:econom:v:73:y:2006:i:291:p:367-392
    DOI: 10.1111/j.1468-0335.2006.00515.x
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