IDEAS home Printed from https://ideas.repec.org/p/van/wpaper/0228.html
   My bibliography  Save this paper

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

Author

Listed:
  • Neville N. Jiang

    (Department of Economics, Vanderbilt University)

  • Ping Wang

    (Department of Economics, Vanderbilt University, NBER)

  • Haibin Wu

    (University of Alberta)

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.

Suggested Citation

  • Neville N. Jiang & Ping Wang & Haibin Wu, 2002. "Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents," Vanderbilt University Department of Economics Working Papers 0228, Vanderbilt University Department of Economics, revised Oct 2003.
    • Handle: RePEc:van:wpaper:0228
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/pubs/VUECON/vu02-w28R.pdf
    File Function: Revised version, 2003
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    3. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
    4. Jess Benhabib & Qinglai Meng & Kazuo Nishimura, 2012. "Indeterminacy Under Constant Returns to Scale in Multisector Economies," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 403-412, Springer.
    5. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, vol. 58(4), pages 929-950, July.
    6. Nicola Cetorelli & Michele Gambera, 2001. "Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data," Journal of Finance, American Finance Association, vol. 56(2), pages 617-648, April.
    7. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2000. "Credit Market Imperfections, Financial Activity and Economic Growth," Vanderbilt University Department of Economics Working Papers 0020, Vanderbilt University Department of Economics.
    8. De Gregorio, Jose & Kim, Se-Jik, 2000. "Credit Markets with Differences in Abilities: Education, Distribution, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 579-607, August.
    9. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    10. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    11. John Fender & Ping Wang, 2003. "Educational Policy in a Credit Constrained Economy with Skill Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 939-964, August.
    12. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-834, August.
    13. Thomas Piketty, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 173-189.
    14. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 501-526.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Łukasz Jabłoński, 2011. "Kapitał ludzki w wybranych modelach wzrostu gospodarczego," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1-2, pages 81-103.
    2. Jiang, Neville & Wang, Ping & Wu, Haibin, 2010. "Ability-heterogeneity, entrepreneurship, and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 522-541, March.
    3. Salwa TRABELSI, 2017. "Public education expenditure and economic growth: the educational quality threshold effect," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 45, pages 99-112.
    4. Nagmi Moftah Aimer, 2020. "Renewable energy consumption, financial development and economic growth: Evidence from panel data for the Middle East and North African countries," Economics Bulletin, AccessEcon, vol. 40(3), pages 2058-2072.
    5. Nicholas Apergis & Christina Christou & Stephen Miller, 2012. "Convergence patterns in financial development: evidence from club convergence," Empirical Economics, Springer, vol. 43(3), pages 1011-1040, December.
    6. Anne C. Maduka & Kevin O. Onwuka, 2013. "Financial Market Structure and Economic Growth: Evidence from Nigeria Data," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(1), pages 75-98, January.
    7. Ben Fine, 1998. "Endogenous Growth Theory: A Critical Assessment," Working Papers 80, Department of Economics, SOAS University of London, UK.
    8. Laurent Cavenaile & Christian Gengenbach & Franz Palm, 2014. "Stock Markets, Banks and Long Run Economic Growth: A Panel Cointegration-Based Analysis," De Economist, Springer, vol. 162(1), pages 19-40, March.
    9. Alberto Bucci & Simone Marsiglio, 2019. "Financial development and economic growth: long‐run equilibrium and transitional dynamics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(3), pages 331-359, July.
    10. Ho, Wai-Hong, 2008. "Credit Market Development and Human Capital Accumulation," MPRA Paper 16760, University Library of Munich, Germany.
    11. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    12. Trunin, Pavel (Трунин, Павел), 2015. "Analysis of the Level of Development of the Financial System in the Russian Federation [Анализ Уровня Развития Финансовой Системы В Российской Федерации]," Published Papers mn38, Russian Presidential Academy of National Economy and Public Administration.
    13. Maswana, Jean-Claude, 2006. "An empirical investigation around the finance-growth puzzle in China with a particular focus on causality and efficiency considerations," MPRA Paper 3946, University Library of Munich, Germany, revised Apr 2006.
    14. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth : The Role of Domestic Financial Sector," Finance Working Papers 22205, East Asian Bureau of Economic Research.
    15. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    16. Hsueh, Shun-Jen & Hu, Yu-Hau & Tu, Chien-Heng, 2013. "Economic growth and financial development in Asian countries: A bootstrap panel Granger causality analysis," Economic Modelling, Elsevier, vol. 32(C), pages 294-301.
    17. Deidda, Luca & Fattouh, Bassam, 2005. "Concentration In The Banking Industry And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 9(2), pages 198-219, April.
    18. Maria Carme Riera i Prunera, 2003. "Deficit, human capital and economic growth dynamics," Working Papers in Economics 102, Universitat de Barcelona. Espai de Recerca en Economia.
    19. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2000. "Credit Market Imperfections, Financial Activity and Economic Growth," Vanderbilt University Department of Economics Working Papers 0020, Vanderbilt University Department of Economics.
    20. De Gregorio, Jose, 1996. "Borrowing constraints, human capital accumulation, and growth," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 49-71, February.

    More about this item

    Keywords

    Occupational Choice; financial market; distribution and growth;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:van:wpaper:0228. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: http://www.vanderbilt.edu/econ/wparchive/index.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.