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Sectoral differentiation, allocation of talent, and financial development

Jaimovich, E (2011) Sectoral differentiation, allocation of talent, and financial development Journal of Development Economics, 96 (1). pp. 47-60.

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Abstract

I present a theory of development in which heterogeneously talented entrepreneurs require credit to start new projects and open new sectors. During development the variety of sectors expands, which allows better sorting of entrepreneurial talent. The paper shows that, in addition to increasing the average productivity of matches between agents and sectors, this process also mitigates informational frictions in the financial markets. Furthermore, the impact of sectoral variety on the operation of financial markets gives rise to an interesting feedback between financial development and R&D effort, which may lead to different types of dynamics. A successful economy exhibits a progressive increase in the variety of sectors, which in turn enhances the operation of financial markets. However, a poverty trap may also arise. This situation is characterised by a rudimentary productive structure with poor matching of skills to activities and severely inefficient credit to talented entrepreneurs. © 2010 Elsevier B.V.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
AuthorsEmailORCID
Jaimovich, EUNSPECIFIEDUNSPECIFIED
Date : 1 September 2011
Identification Number : 10.1016/j.jdeveco.2010.07.005
Additional Information : © 2011. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Depositing User : Symplectic Elements
Date Deposited : 18 Nov 2015 15:06
Last Modified : 18 Nov 2015 15:06
URI: http://epubs.surrey.ac.uk/id/eprint/808911

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