Credit Constraints, Entrepreneurial Talent, and Economic Development
Résumé
In this paper, we formalize the view that economic development requires high rates of productive entrepreneurship, and this requires an e¢ cient matching between entrepreneurial talent and production technologies. We
rst explore the role of
nancial development in promoting such e¢ cient allocation of talent, which results in higher production, job creation and social mobility. We then show how di¤er- ent levels of
nancial development may endogenously arise in a setting in which
nancial constraints depend on individual incentives to mis- behave, these incentives depend on how many jobs are available, and this in turn depends on the level of
nancial development. Such com- plementarity between labor market and
nancial market development may generate highly divergent development paths even for countries with very similar initial conditions.
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