Is Inequality Bad for Business : A Nonlinear Microeconomic Model of Wealth Effects on Self-Employment
It is widely assumed that pervasive credit market failures mean that a person's current wealth is critical to whether or not that person can take up opportunities to start a new business. The authors show that inequality in wealth can be eithe...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2001/01/888059/inequality-bad-business-non-linear-microeconomic-model-wealth-effects-self-employment http://hdl.handle.net/10986/19720 |
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okr-10986-197202021-04-23T14:03:44Z Is Inequality Bad for Business : A Nonlinear Microeconomic Model of Wealth Effects on Self-Employment Mesnard, Alice Ravallion, Martin CAPITAL CONSTRAINTS CAPITAL FORMATION CAPITAL MARKETS CAPITAL REQUIREMENTS COST OF CAPITAL CREDIT RATIONING DIMINISHING RETURNS DISTRIBUTION OF WEALTH ECONOMIC RESEARCH ECONOMIC THEORY EMPIRICAL EVIDENCE EMPLOYMENT ENTREPRENEURSHIP EQUALIZATION GROWTH THEORIES INCOME INCOME INEQUALITY INCREASING RETURNS INHERITANCE INNOVATION INTEREST RATE LIQUIDITY LIVING CONDITIONS MACROECONOMIC ACTIVITY MACROECONOMIC GROWTH MACROECONOMICS MIGRANTS MIGRATION OPPORTUNITY COST POLITICAL ECONOMY PRODUCTION FUNCTIONS PUBLIC EXPENDITURES SAVINGS WEALTH WEALTH DISTRIBUTION WORKERS It is widely assumed that pervasive credit market failures mean that a person's current wealth is critical to whether or not that person can take up opportunities to start a new business. The authors show that inequality in wealth can be either good or bad for the level of entrepreneurship in an economy, depending on how diminishing returns to capital interact with borrowing constraints at the microeconomic level. They use nonparametric regression methods to study wealth effects on business start-ups among migrants returning to their home country, Tunisia. They include controls for heterogeneity, with specification tests for the nonseparable effects with wealth and for selection bias. There is no evidence of increasing returns at low wealth. The aggregate number of business start-ups is an increasing function of aggregate wealth but a decreasing function of wealth inequality. In other words, at any given mean, the higher the initial inequality of wealth, the lower the rate of new business start-ups, through the existence of diminshing returns to capital given liquidity constraints. In this sense, the results suggest that inequality is bad for business--but the size of this effect is small. The findings do not constitute a case for public redistribution of wealth as a means of stimulating business activity. There should probably be more research on interventions to reduce liquidity constraints. 2014-08-26T20:19:17Z 2014-08-26T20:19:17Z 2001-01 http://documents.worldbank.org/curated/en/2001/01/888059/inequality-bad-business-non-linear-microeconomic-model-wealth-effects-self-employment http://hdl.handle.net/10986/19720 English en_US Policy Research Working Paper;No. 2527 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Middle East and North Africa Tunisia |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
CAPITAL CONSTRAINTS CAPITAL FORMATION CAPITAL MARKETS CAPITAL REQUIREMENTS COST OF CAPITAL CREDIT RATIONING DIMINISHING RETURNS DISTRIBUTION OF WEALTH ECONOMIC RESEARCH ECONOMIC THEORY EMPIRICAL EVIDENCE EMPLOYMENT ENTREPRENEURSHIP EQUALIZATION GROWTH THEORIES INCOME INCOME INEQUALITY INCREASING RETURNS INHERITANCE INNOVATION INTEREST RATE LIQUIDITY LIVING CONDITIONS MACROECONOMIC ACTIVITY MACROECONOMIC GROWTH MACROECONOMICS MIGRANTS MIGRATION OPPORTUNITY COST POLITICAL ECONOMY PRODUCTION FUNCTIONS PUBLIC EXPENDITURES SAVINGS WEALTH WEALTH DISTRIBUTION WORKERS |
| spellingShingle |
CAPITAL CONSTRAINTS CAPITAL FORMATION CAPITAL MARKETS CAPITAL REQUIREMENTS COST OF CAPITAL CREDIT RATIONING DIMINISHING RETURNS DISTRIBUTION OF WEALTH ECONOMIC RESEARCH ECONOMIC THEORY EMPIRICAL EVIDENCE EMPLOYMENT ENTREPRENEURSHIP EQUALIZATION GROWTH THEORIES INCOME INCOME INEQUALITY INCREASING RETURNS INHERITANCE INNOVATION INTEREST RATE LIQUIDITY LIVING CONDITIONS MACROECONOMIC ACTIVITY MACROECONOMIC GROWTH MACROECONOMICS MIGRANTS MIGRATION OPPORTUNITY COST POLITICAL ECONOMY PRODUCTION FUNCTIONS PUBLIC EXPENDITURES SAVINGS WEALTH WEALTH DISTRIBUTION WORKERS Mesnard, Alice Ravallion, Martin Is Inequality Bad for Business : A Nonlinear Microeconomic Model of Wealth Effects on Self-Employment |
| geographic_facet |
Middle East and North Africa Tunisia |
| relation |
Policy Research Working Paper;No. 2527 |
| description |
It is widely assumed that pervasive
credit market failures mean that a person's current
wealth is critical to whether or not that person can take up
opportunities to start a new business. The authors show that
inequality in wealth can be either good or bad for the level
of entrepreneurship in an economy, depending on how
diminishing returns to capital interact with borrowing
constraints at the microeconomic level. They use
nonparametric regression methods to study wealth effects on
business start-ups among migrants returning to their home
country, Tunisia. They include controls for heterogeneity,
with specification tests for the nonseparable effects with
wealth and for selection bias. There is no evidence of
increasing returns at low wealth. The aggregate number of
business start-ups is an increasing function of aggregate
wealth but a decreasing function of wealth inequality. In
other words, at any given mean, the higher the initial
inequality of wealth, the lower the rate of new business
start-ups, through the existence of diminshing returns to
capital given liquidity constraints. In this sense, the
results suggest that inequality is bad for business--but the
size of this effect is small. The findings do not constitute
a case for public redistribution of wealth as a means of
stimulating business activity. There should probably be more
research on interventions to reduce liquidity constraints. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Mesnard, Alice Ravallion, Martin |
| author_facet |
Mesnard, Alice Ravallion, Martin |
| author_sort |
Mesnard, Alice |
| title |
Is Inequality Bad for Business : A Nonlinear Microeconomic Model of Wealth Effects on Self-Employment |
| title_short |
Is Inequality Bad for Business : A Nonlinear Microeconomic Model of Wealth Effects on Self-Employment |
| title_full |
Is Inequality Bad for Business : A Nonlinear Microeconomic Model of Wealth Effects on Self-Employment |
| title_fullStr |
Is Inequality Bad for Business : A Nonlinear Microeconomic Model of Wealth Effects on Self-Employment |
| title_full_unstemmed |
Is Inequality Bad for Business : A Nonlinear Microeconomic Model of Wealth Effects on Self-Employment |
| title_sort |
is inequality bad for business : a nonlinear microeconomic model of wealth effects on self-employment |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2001/01/888059/inequality-bad-business-non-linear-microeconomic-model-wealth-effects-self-employment http://hdl.handle.net/10986/19720 |
| _version_ |
1764440444800860160 |