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Credit Constraints, Entrepreneurial Talent, and Economic Development

In this paper, we formalize the view that economic development requires high rates of productive entrepreneurship, and this requires an efficient matching between entrepreneurial talent and production echnologies. We first explore the role of financial development in promoting such efficient allocation of talent, which results in higher production, job creation and social mobility. We then show how different levels of financial development may endogenously arise in a setting in which financial constraints depend on individual incentives to misbehave, these incentives depend on how many jobs are available, and this in turn depends on the level of financial development. Such complementarity between labour market and financial marketdevelopment may generate highly divergent development paths even for countries with very similar initial
Year of publication:
2009
Authors: Bianchi, Milo
Institutions: World Institute for Development Economic Research (UNU/WIDER), United Nations University
Subject: credit constraints | allocation of entrepreneurial talent | productive and unproductive entrepreneurs | economic development
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Type of publication: Book / Working Paper
Language: English
Notes:
Number UNU-WIDER Research Paper RP2009/20 2 pages long
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