Self-employment and development

Arbeitspapier

Selection into self-employment among the poor is dominated by subsistence concerns, which leads to high levels of unproductive self-employment in developing countries. We incorporate this view into an otherwise benchmark macro-development model by allowing for labor frictions. Standard models that rely only on financial frictions are at odds with crucial features of the data, including large self-employment rates among the poor and the response of labor markets after well-identified labor demand shocks. We study the efficacy of a wide range of development policies on occupational choices, prices, and productivity. We find that providing unemployment benefits improves selection into self-employment, increasing total-factor productivity (TFP). Self-employment grants and unconditional transfers lower TFP by making self-employment more attractive to low-productivity individuals. Finally, financial reforms that improve access to credit succeed in raising productivity, but they do not address the subsistence concerns of poor individuals. Self-employment is still concentrated among the poor after the reforms take place.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CHCP Working Paper ; No. 2020-9

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Macroeconomic Analyses of Economic Development ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
• Subject: Self-Employment ; Unemployment ; Development ; Micro-Finance

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Herreño, Juan ; Ocampo Díaz, Sergio
• Event: Veröffentlichung
• (who): The University of Western Ontario, Centre for Human Capital and Productivity (CHCP)
• (where): London (Ontario)
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/240398
• Last update: 10.03.2025, 11:46 AM CET