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108 CHAPTER 6 SUMMARY The paper explores the interaction between capital markets imperfections and the agents’ occupations in a technologically non-advanced country. We then build a two-period overlapping-generations growth model with heterogeneous agents. We suppose that agents inherit ability and a technique of production from their parents. We show that when information in the capital markets is imperfect the occupational choices of agents are endogenous. We also find that there are two endogenous thresholds of ability which allow distinguishing lenders, R&D innovators and implementers who produce intermediate goods with lagged productivity. Finally, the growth rate and convergence depend both on the level and the structure of human capital. Capital markets influence economic growth and convergence through technology. INTRODUCTION Most current theories of development economics show that capital markets are important in the financing of economic activities. They can increase the volume of investments by loans to agents and thus contribute to increase the level of employment, product and the rate of economic growth. But in an uncertain environment, where the risk on borrowers, asymmetries and monitoring and agency costs are important, the role of allocation of capital market resources is strongly undermined. Indeed, risks related to borrowers, asymmetries and high agency costs explain in some countries the limited access of a great number of agents to credit. In this context, what can be the effects of capital market on economic activities? How does it influence the occupational choices of an agent? Human Capital, R&D and Endogenous Occupational Choice Loesse Jacques Esso 109 Economic literature is largely interested in the role of capital markets in the occupational choices of an agent. In macroeconomics, capital markets are studied according to two types of models from the point of view of the nature of the endowment. A first range of models supposes that individuals inherit heterogeneous endowments while a second range of work considers that the source of the heterogeneity of agents is their parents’ human capital. In models where individuals have heterogeneous endowments, an agent has to decide if she will invest in human capital or not. It is shown in these models that capital market imperfections negatively influence the distribution of the wealth. Indeed, in the presence of asymmetries, the debt rate of capital is lower than the credit rate because of the existence of monitoring costs. Thus, only the agents who are sufficiently rich to buy or pay an interest rate higher than the loans can invest in human capital. These individuals become skilled workers and those who are not educated remain unqualified (LloydEllis , 2000). Galor and Zeira (1993) show that throughout this mechanism, the initial distribution of the wealth determines the aggregate investments in human capital and the long run income per capita. If the initial inequality is sufficiently low, equilibrium with equity is observed according to that all the workers have the same wage and the income per capita will reach its highest level. The initial levels of inequality allow determining the properties of the long-term equilibrium (Banerjee and Newman, 1993). In a more general model, Lloyd-Ellis and Bernhardt (2000) consider agents whose heterogeneity is the entrepreneurial efficiency and the level of physical capital endowment. The effects of wealth and ability are different and vary as the economy develops. They conclude that at the first stages of development, the inherited wealth is the main determinant of occupational choice because rich agents can invest in physical capital. But at the later stages, the entrepreneurial efficiency is more important. Indeed, when the entrepreneurial efficiency is low, the interaction between credit constraints, the entrepreneurial efficiency and the equilibrium wage generates cyclical wealth distributions. In a second range of models, the choices of an agent are rather due to the parents’ ability. In this context, Ghatak, Morelli and Sjöstrom (2001) build a model in which individuals have to work first and then save before acquiring sufficient wealth to invest in their own project. An agent, once old, can choose to remain a worker or an entrepreneur. These authors show that the existence of credit constraints in an economy is an incentive to work. Indeed, the poor young agents exert more effort in order to acquire income at least as large as the revenues of the entrepreneurs. In case of moral hazard, an increase in the agents’ effort raises the human well-being. HUMAN CAPITAL, R&D AND ENDOGENOUS OCCUPATIONAL CHOICE [3.140.242.165] Project MUSE (2024-04-19 05:45 GMT...

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