Human Capital and Financial Development

Firm-Level Interactions and Macroeconomic Implications

Bibliographic Data

ID9705661
AuthorsLian Allub (0000-0002-4307-9025, CAF-Development Bank of Latin America , Argentina), Priscyla Gomes (0000-0002-0011-9285, Birkbeck, University of London), Pedro Gomes (0009-0007-9508-2609, Birkbeck, University of London), Zoë Kuehn (0000-0001-5660-1583, Universidad Autónoma de Madrid)
Year2024
Volume134
Issue659
Pages934-958
Publication date2024-03-18
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (PUBLISHER • GB)
DOI10.1093/ej/uead098
OpenAlexW4388921974
LanguageEN
Citations received3
References cited32

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 financial market liberalizations and increases in educational attainment. 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 total factor productivity, financial development has only small effects on aggregate output

Capital intensity · Capital market · Capital market imperfections · Complementarity (molecular biology · Economic growth · Economics · Educational attainment · Financial capital · Financial market · Human capital · Inequality · Labour economics · Macroeconomics · Monetary economics · Physical capital · Production (economics · Productivity · Total factor productivity · Wage · Economic Growth and Productivity · Finance · Firm Innovation and Growth · Labor market dynamics and wage inequality

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