The Role of Skilled Labor in Income-based Government-directed Bank Lending

Indraneel Chackraborty (), Vidhi Chhaochharia () and Rong Hai ()
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Indraneel Chackraborty: Department of Economics, University of Miami
Vidhi Chhaochharia: Department of Economics, University of Miami
Rong Hai: Department of Economics, University of Miami

No wp2022-02, Working Papers from University of Miami, Department of Economics

Abstract: We show that when governments direct banks to lend based on income, the outcomes differ by how closely capital matches the availability of skilled labor in the target population. We document that when skilled labor in the target area is high, additional credit is absorbed in small businesses and future welfare outlays are reduced. In contrast, if skilled labor is relatively low, then capital flows to mortgages and results in housing price growth. Our results point towards the importance of developing skilled labor, alongside credit-provision, for overall development of under-privileged communities.

Keywords: bank lending; skilled labor (search for similar items in EconPapers)
JEL-codes: G21 H23 I38 R11 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2022-09-08
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