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Finance as a Magnet for the Best and Brightest: Implications for the Real Economy

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  • Christiane Kneer

Abstract

This paper examines how the absorption of talent into the financial sector affects the real sectors in the economy. Based on a sample of 13 countries observed over the period 1980-2005, I show that financial liberalization is associated with skill-upgrading in the financial sector. I exploit variation in financial liberalization across countries and time, and differences in the needs for skilled labour across manufacturing industries to identify the effect of the absorption of talent into finance on real sector outcomes. My evidence suggests that employment of skilled individuals grows disproportionally slower in skill-intensive relative to less skill-intensive industries following financial reform. I also show that financial liberalization decreases labour productivity, total factor productivity and value added growth disproportionally in industries which rely strongly on skilled labour. This is consistent with the idea that financial liberalization hurts non-financial sectors via a brain-drain effect. Among the different dimensions of financial liberalization, especially policies fostering the development of security markets account for this finding.

Suggested Citation

  • Christiane Kneer, 2013. "Finance as a Magnet for the Best and Brightest: Implications for the Real Economy," DNB Working Papers 392, Netherlands Central Bank, Research Department.
    • Handle: RePEc:dnb:dnbwpp:392
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    File URL: https://www.dnb.nl/en/binaries/Working%20Paper%20392_tcm47-296166.pdf
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The brain drain from financial liberalization
      by Economic Logician in Economic Logic on 2013-10-24 19:43:00
    2. Quelles relations entre structure financière et croissance économique ?
      by ? in D'un champ l'autre on 2014-03-12 21:26:00
    3. L’énigme de la productivité outre-Manche
      by ? in D'un champ l'autre on 2014-07-31 04:48:00

    Citations

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    Cited by:

    1. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Iftekhar Hasan & Roman Horvath & Jan Mares, 2018. "What Type of Finance Matters for Growth? Bayesian Model Averaging Evidence," World Bank Economic Review, World Bank Group, vol. 32(2), pages 383-409.
    3. Giorgio Fagiolo & Daniele Giachini & Andrea Roventini, 2020. "Innovation, finance, and economic growth: an agent-based approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(3), pages 703-736, July.
    4. Samba Mbaye & Marialuz Moreno Badia & Kyungla Chae, 2018. "Bailing Out the People? When Private Debt Becomes Public," IMF Working Papers 2018/141, International Monetary Fund.
    5. Atul MEHTA & Joysankar BHATTACHARYA, 2018. "Financial sector development and the poor in developing countries: revisiting the access to finance channel," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(616), A), pages 153-168, Autumn.
    6. Giorgio Fagiolo & Daniele Giachini & Andrea Roventini, 2017. "Innovation, Finance, and Economic Growth : an agent-based model," Sciences Po publications info:hdl:2441/1fai9i49vu8, Sciences Po.
    7. Panicos O. Demetriades & Peter L. Rousseau & Johan Rewilak, 2017. "Finance, Growth And Fragility," Discussion Papers in Economics 17/13, Division of Economics, School of Business, University of Leicester.
    8. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    10. Thorsten Beck, 2014. "Ireland's Banking System - Looking Forward," The Economic and Social Review, Economic and Social Studies, vol. 45(1), pages 113-134.
    11. Francesco D'Acunto & Laurent Frésard, 2018. "Finance, Talent Allocation, and Growth," CESifo Working Paper Series 6883, CESifo.
    12. Hamid Boustanifar & Everett Grant & Ariell Reshef, 2016. "Wages and human capital in finance: international evidence, 1970-2005," Globalization Institute Working Papers 266, Federal Reserve Bank of Dallas.
    13. repec:bof:bofrdp:urn:nbn:fi:bof-201508211364 is not listed on IDEAS

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