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Wealth, Human Capital and the Transition to Self-Employment

Author

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  • Berna Demiralp

    (Optimal Solutions Group, College Park, MD, 20740, USA)

  • Johanna L Francis

    (Department of Economics, Fordham University, Bronx, NY 10458, USA)

Abstract

Although the debate about the effect of wealth on entrepreneurship or self-employment is now almost two decades old, there is little consensus among researchers about the significance of wealth as a determinant for self-employment. In this paper, we shift the focus from whether potential entrepreneurs, as a group, are credit constrained, to whom among potential entrepreneurs is credit constrained. We consider the impact of education and experience on the probability of choosing self-employment, in an environment where individuals may be credit constrained. We find that for individuals with low human capital, wealth and entrepreneurial entry are negatively related, while wealth has no statistically significant effect on entry for individuals with medium to high human capital. This result is puzzlingly at odds with the classic Evans-Jovanovic model for entrepreneurial entry. We discuss one possibility for reconciling the two.

Suggested Citation

  • Berna Demiralp & Johanna L Francis, 2013. "Wealth, Human Capital and the Transition to Self-Employment," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(1), pages 72-92.
  • Handle: RePEc:pal:easeco:v:39:y:2013:i:1:p:72-92
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    Cited by:

    1. Robert W. Fairlie & Harry A. Krashinsky, 2012. "Liquidity Constraints, Household Wealth, And Entrepreneurship Revisited," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(2), pages 279-306, June.
    2. Robert W. Fairlie, 2013. "Minority and immigrant entrepreneurs: access to financial capital," Chapters,in: International Handbook on the Economics of Migration, chapter 8, pages 153-175 Edward Elgar Publishing.

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