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Human Capital and Financial Development

Virgiliu Midrigan, Fernando Leibovici and Julio Blanco
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Julio Blanco: University of Michigan

No 1187, 2017 Meeting Papers from Society for Economic Dynamics

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.

Date: 2017
New Economics Papers: this item is included in nep-bec, nep-dge and nep-fdg
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