Financial Development and Micro-Entrepreneurship
67 Pages Posted: 14 Sep 2014 Last revised: 29 Jul 2019
Date Written: July 26, 2019
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: Suggested Citation