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Financial Fragility, Business Creation and Job Destruction

Author

Listed:
  • Etienne Wasmer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Philippe Weil

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

We build a model of endogenous destruction with credit and labor market imperfections, represented by a matching process between financiers and entrepreneurs on one hand, and entrepreneurs and workers on the other hand. Business creation, credit opening and job destruction represent three active margins of the model. Financial imperfections lead to financial fragility. This implies the existence of a forth latent margin which may be activated in the case of repudiation of financial contracts. This paradigm is applied to the recent development of the U.S. economy. An empirical test in panel of OECD countries further suggests the importance of venture capital for macroeconomic variables.

Suggested Citation

  • Etienne Wasmer & Philippe Weil, 2002. "Financial Fragility, Business Creation and Job Destruction," SciencePo Working papers Main hal-01017720, HAL.
    • Handle: RePEc:hal:spmain:hal-01017720
    DOI: 10.3917/rel.681.0185
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-01017720
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    References listed on IDEAS

    as
    1. Acemoglu, Daron, 2001. "Credit market imperfections and persistent unemployment," European Economic Review, Elsevier, vol. 45(4-6), pages 665-679, May.
    2. Philippe Weil & Etienne Wasmer, 2004. "The macroeconomics of credit and labor market imperfections," ULB Institutional Repository 2013/13436, ULB -- Universite Libre de Bruxelles.
    3. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
    4. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    5. Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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