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Occupational Choice, Human Capital, and Financing Constraints

  • Pavel Sevcik

    (Ecole des Sciences de Gestion, Universite du Quebec a Montreal (ESG UQAM))

  • Rui Castro

    (University of Montreal)

We develop a framework which allows us to study the effect of financing constraints for both firm-level investment decisions, and household-level schooling decisions. We characterize the joint determination of occupational choices, educational outcomes, and production decisions. We first evaluate the role of financial frictions in distorting resource allocation. We find significant departures from efficiency, from adverse selection effects into entrepreneurship, to distortions in both investment/schooling and production decisions. We then (i) ask whether our model helps understand observed cross-country variation in outcomes, and (ii) quantify the full effect of financing frictions for economic development, and in particular whether our framework produces an amplification of the output and productivity effects of financing frictions compared to standard models without schooling investments.

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File URL: https://www.economicdynamics.org/meetpapers/2013/paper_1321.pdf
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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1321.

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Date of creation: 2013
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Handle: RePEc:red:sed013:1321
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  1. Andrés Erosa & Tatyana Koreshkova & Diego Restuccia, 2010. "How Important Is Human Capital? A Quantitative Theory Assessment of World Income Inequality," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1421-1449.
  2. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
  3. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," NBER Working Papers 13290, National Bureau of Economic Research, Inc.
  4. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
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