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Pavel Ševčík, Ph.D.

Université du Québec à Montréal (UQAM), Canada

Authors: Rui Castro and Pavel Ševčík

Abstract: We study the aggregate productivity effects of firm-level financial frictions. Credit constraints affect not only production decisions but also household-level schooling decisions. In turn, entrepreneurial schooling decisions impact firm-level productivities, whose cross-sectional distribution becomes endogenous. In anticipation of future constraints, entrepreneurs under-invest in schooling. Frictions lower aggregate productivity because talent is misallocated across occupations, and capital misallocated across firms. In addition, firm-level productivities are also lower due to schooling distortions. These effects combined account for between 22 and 44 percent of the U.S.-India aggregate productivity difference, depending on the calibration. Schooling distortions are the major source of these aggregate productivity differences.

Keywords:  Aggregate Productivity, Financial Frictions, Entrepreneurship, Human Capital.

JEL Codes: E24, I25, J24, O11, O15, O16, 047.

Full Text:  “Occupational Choice, Human Capital, and Financial Constraints”