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    Human capital and financial development: firm-level interactions and macroeconomic implications

    Allub, L. and Gomes, Pedro and Kuehn, Z. (2023) Human capital and financial development: firm-level interactions and macroeconomic implications. The Economic Journal , ISSN 0013-0133.

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    Capital-skill complementarity in production implies non-trivial interactions between the availability of human capital and financial constraints. Firms that are constrained in their access to finance hire a lower proportion of skilled workers than do unconstrained firms. Conversely, a lack of human capital increases skilled wages, reducing firms’ desired capital intensity and thus loosening firms’ effective financial constraints. To assess the macroeconomic implications of such firm-level interactions, we build an occupational-choice model with capital-skill complementarity in production, which we calibrate to US data. We vary financial frictions, educational attainment, and total factor productivity across countries, and we quantify how aggregate output, wage inequality, and entrepreneurship are affected by these variations. For aggregate output, the joint effect of both factors is, on average 30 % larger than the sum of the individual effects. Taking the educational attainment of the population as given, in countries with a negligible share of tertiary educated workers and low TFP, financial development has only small effects on aggregate output.


    Item Type: Article
    Keyword(s) / Subject(s): financial development, financial frictions, capital-skill complementarity, educational attainment, wage inequality, entrepreneurship
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Depositing User: Administrator
    Date Deposited: 21 Nov 2023 15:47
    Last Modified: 25 Jan 2024 00:56


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