The effect of digital financial innovation on structural transformation and the labour market

Fabrizio Lanzafame, Michele Limosani and Fabio Monteforte

International Journal of Trade and Global Markets, 2020, vol. 13, issue 4, 434-453

Abstract: This paper focuses on the possible impact of more efficient credit allocation on a country's processes of structural transformation. We develop a dynamic version of a small-scale general equilibrium model for a dual economy, in which labour reallocation is accompanied by involuntary unemployment in the modern sector, whose degree of financial efficiency varies over time. Counterfactual simulations indicate that structural transformation is faster in economies with greater financial efficiency, because the incentives for intersectoral migration are greater. That is, from the very outset of the transition the expected utility of working in the modern sector is greater. In our simulations, the greater flow of labour does not translate into higher unemployment rates.

Keywords: structural change; dual economy; labour reallocation; intersaectoral migration; financial efficiency; credit allocation; labour market; efficiency wages; unemployment; digital economy. (search for similar items in EconPapers)
Date: 2020
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