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Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents

Author

Listed:
  • Neville N. Jiang

    () (Department of Economics, Vanderbilt University)

  • Ping Wang

    () (Department of Economics, Vanderbilt University, NBER)

  • Haibin Wu

    (University of Alberta)

Abstract

This paper develops an overlapping-generations model of finance and growth with intrinsic heterogeneity in loanable fund conversion ability, where agents make occupational choice between becoming entrepreneurs and becoming workers. For a given ability distribution, a decrease in the number of entrepreneurs may create an occupational choice effect, enhancing the rate of growth of the economy, as the average conversion ability of the remaining entrepreneurs is higher. A change in ability distribution parameters may generate a permanent growth effect. Due to the presence of an occupational choice effect, a scale effect and general-equilibrium wage adjustments, however, financial market thickness and income growth need not be positively correlated, in response to such distribution shifts. While both a reduction in the unit financial operation cost and an improvement in manufacturing productivity are growth enhancing, they have different effects on equilibrium prices and financial markup.

Suggested Citation

  • Neville N. Jiang & Ping Wang & Haibin Wu, 2002. "Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents," Vanderbilt University Department of Economics Working Papers 0228, Vanderbilt University Department of Economics, revised Oct 2003.
  • Handle: RePEc:van:wpaper:0228
    as

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    File URL: http://www.accessecon.com/pubs/VUECON/vu02-w28R.pdf
    File Function: Revised version, 2003
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
    3. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    4. Jess Benhabib & Qinglai Meng & Kazuo Nishimura, 2000. "Indeterminacy under Constant Returns to Scale in Multisector Economies," Econometrica, Econometric Society, vol. 68(6), pages 1541-1548, November.
    5. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, vol. 58(4), pages 929-950, July.
    6. Nicola Cetorelli, 2001. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Journal of Finance, American Finance Association, vol. 56(2), pages 617-648, April.
    7. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2000. "Credit Market Imperfections, Financial Activity and Economic Growth," Vanderbilt University Department of Economics Working Papers 0020, Vanderbilt University Department of Economics.
    8. Thomas Piketty, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 173-189.
    9. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
    10. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    11. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    12. John Fender & Ping Wang, 2003. "Educational Policy in a Credit Constrained Economy with Skill Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 939-964, August.
    13. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-834, August.
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    More about this item

    Keywords

    Occupational Choice; financial market; distribution and growth;

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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