 Skill bias, financial frictions, and selection into entrepreneurshipYing Feng and Jie Ren Journal of Development Economics, 2023, vol. 162, issue C Abstract: Financial frictions adversely affect productivity by discouraging entrepreneurship, which is often measured by the self-employed. This paper distinguishes different types of self-employment when studying this question. Using micro data for 77 countries from all income levels, we show that employers’ labor shares are increasing with GDP per capita, whereas own-account employment (self-employed without employees) is decreasing. We also find almost universally negative selection on education into own-account status relative to wage workers and positive selection into employers. To quantitatively match these facts, we introduce skill-biased technological change across countries in an occupational choice model with financial frictions. Our model predicts an average of 19% output gains in low-income countries from removing financial frictions. In contrast, an alternative model with skill-neutral technological change cannot match the high own-account employment share in low-income countries, thus overestimating the output gains by 13 percentage points. Keywords: Skill-biased technological change; Financial frictions; Selection; Self-employment; Micro data across countries (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:162:y:2023:i:c:s0304387823000019 DOI: 10.1016/j.jdeveco.2023.103046 Access Statistics for this article Journal of Development Economics is currently edited by M. R. Rosenzweig More articles in Journal of Development Economics from Elsevier |
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