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Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents

Neville Jiang (), Ping Wang () and Haibin Wu
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Neville Jiang: Department of Economics, Vanderbilt University

No 228, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: This paper develops an overlapping-generations model of finance and growth with intrinsic heterogeneity in loanable fund conversion ability, where agents make occupational choice between becoming entrepreneurs and becoming workers. For a given ability distribution, a decrease in the number of entrepreneurs may create an occupational choice effect, enhancing the rate of growth of the economy, as the average conversion ability of the remaining entrepreneurs is higher. A change in ability distribution parameters may generate a permanent growth effect. Due to the presence of an occupational choice effect, a scale effect and general-equilibrium wage adjustments, however, financial market thickness and income growth need not be positively correlated, in response to such distribution shifts. While both a reduction in the unit financial operation cost and an improvement in manufacturing productivity are growth enhancing, they have different effects on equilibrium prices and financial markup.

Keywords: Occupational Choice; financial market; distribution and growth (search for similar items in EconPapers)
JEL-codes: D90 G20 O4 (search for similar items in EconPapers)
Date: 2002-04, Revised 2003-10
New Economics Papers: this item is included in nep-cfn, nep-dev, nep-ent and nep-fin
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http://www.accessecon.com/pubs/VUECON/vu02-w28R.pdf Revised version, 2003 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0228

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