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Financial Intermediation and Employment

  • Manoj Pant

    (Manoj Pant is at the Jawaharlal Nehru University (JNU), New Delhi. E-mail: manojp@mail.jnu.ac.in)

  • Prabal Roy Chowdhury

    (Prabal Roy Chowdhury in at the Indian Statistical Institute (ISI), New Delhi. E-mail: prabalrc@isid.ac.in)

  • Gurbachan Singh

    (Gurbachan Singh is at the Jawaharlal Nehru University, New Delhi. E-mail: gbsingh@mail.jnu.ac.in)

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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Article provided by India Development Foundation in its journal Review of Market Integration.

Volume (Year): 1 (2009)
Issue (Month): 1 (April)
Pages: 61-82

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Handle: RePEc:sae:revmar:v:1:y:2009:i:1:p:61-82
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