Financial Development and Micro-Entrepreneurship

67 Pages Posted: 14 Sep 2014 Last revised: 29 Jul 2019

See all articles by Rajeev H. Dehejia

Rajeev H. Dehejia

New York University (NYU) - Robert F. Wagner Graduate School of Public Service; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); CESifo

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Date Written: July 26, 2019

Abstract

Does financial development facilitate micro-entrepreneurship? Using randomized surveys of over 1 million Indian households and district-level bank branch location pre-determined by government policy, we find instead that financial access shifts workers from informal entrepreneurship into formal employment. Investigating the mechanism using data on 400,000 firms, we find that in districts with more banks, established firms borrow more, are more productive, employ more workers, and pay higher wages than firms in less banked districts. This evidence suggests a labor market mechanism by which financial development facilitates growth: by shifting workers from unproductive micro-entrepreneurship into productive employment.

Keywords: Financial development; Self-employment; Micro-enterprises; Labor and Finance; Banking

JEL Classification: G28, G32, G18

Suggested Citation

Dehejia, Rajeev H. and Gupta, Nandini, Financial Development and Micro-Entrepreneurship (July 26, 2019). NYU Wagner Research Paper No. 2494551. Available at SSRN: https://ssrn.com/abstract=2494551 or http://dx.doi.org/10.2139/ssrn.2494551

Rajeev H. Dehejia

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States

HOME PAGE: http://users.nber.org/~rdehejia/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://users.nber.org/~rdehejia/

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Nandini Gupta (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

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