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Human Capital and Financial Development

Author

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  • Virgiliu Midrigan

    (New York University)

  • Fernando Leibovici

    (Federal Reserve Bank of St. Louis)

  • Julio Blanco

    (University of Michigan)

Abstract

We study an economy with capital-skill complementarities, an endogenous human capital and occupational choice decision and firm-level financing constraints. We ask: to what extent do financial frictions reduce output per worker across countries? In our economy, firm-level frictions depress physical capital accumulation and, in equilibrium, also reduce the acquisition of human capital, thus amplifying the decline in output per worker. We estimate the model using repeated cross-sections of individual workers' educational attainment, labor earnings and occupational choice, both for U.S. time-series, as well as for a cross-section of countries. We find that financial frictions have much larger effects on output per worker in our economy than they do in economies with a fixed supply of human capital.

Suggested Citation

  • Virgiliu Midrigan & Fernando Leibovici & Julio Blanco, 2017. "Human Capital and Financial Development," 2017 Meeting Papers 1187, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:1187
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    File URL: https://economicdynamics.org/meetpapers/2017/paper_1187.pdf
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    References listed on IDEAS

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    1. Pavel Sevcik & Rui Castro, 2013. "Occupational Choice, Human Capital, and Financing Constraints," 2013 Meeting Papers 1321, Society for Economic Dynamics.
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    Cited by:

    1. Khan, Zeeshan & Hussain, Muzzammil & Shahbaz, Muhammad & Yang, Siqun & Jiao, Zhilun, 2020. "Natural resource abundance, technological innovation, and human capital nexus with financial development: A case study of China," Resources Policy, Elsevier, vol. 65(C).

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