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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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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1321.

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Date of creation: 2013
Date of revision:
Handle: RePEc:red:sed013:1321
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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