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Financial Intermediation and Employment

  • Manoj Pant


    (Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi)

  • Prabal Roy Chowdhury


    (Indian Statistical Institute (ISI), Delhi Centre.)

  • Gurbachan Singh


    (Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi)

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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Paper provided by Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India in its series Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers with number 09-08.

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Length: 29 pages
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Handle: RePEc:ind:citdwp:09-08
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  14. Simon Johnson, 2000. "Tunneling," American Economic Review, American Economic Association, vol. 90(2), pages 22-27, May.
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  18. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-52, May.
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