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Occupational Choice, Human Capital, and Financial Constraints

Rui Castro () and Pavel Ševčík

No 20162, University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers from University of Western Ontario, Centre for Human Capital and Productivity (CHCP)

Abstract: We study the aggregate productivity effects of firm-level financial frictions. Credit constraints affect not only production decisions but also household-level schooling decisions. In turn, entrepreneurial schooling decisions impact firm-level productivities, whose cross-sectional distribution becomes endogenous. In anticipation of future constraints, entrepreneurs under-invest in schooling. Frictions lower aggregate productivity because talent is misallocated across occupations, and capital misallocated across firms. In addition, firm-level productivities are also lower due to distortions induced by the schooling responses. We find that these effects combined account for about 1/5 of the U.S.-India aggregate productivity difference. Requiring the model to match schooling differences significantly amplifies the impact of frictions, and the model accounts for 58% of the aggregate productivity difference.

Keywords: Aggregate Productivity; Financial Frictions; Entrepreneurship; Human Capital (search for similar items in EconPapers)
JEL-codes: E24 I25 J24 O11 O15 O16 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-bec, nep-cse, nep-dge, nep-ent, nep-hrm, nep-lma and nep-mac
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Working Paper: Occupational Choice, Human Capital, and Financing Constraints (2013) Downloads
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