Sectoral differentiation, allocation of talent, and financial development

Abstract

I present a theory of development in which heterogeneously talented entrepreneurs require credit to start new projects and open new sectors. During development the variety of sectors expands, which allows better sorting of entrepreneurial talent. The paper shows that, in addition to increasing the average productivity of matches between agents and sectors, this process also mitigates informational frictions in the …nancial markets. Furthermore, the impact of sectoral variety on the operation of …nancial markets gives rise to an interesting feedback between …nancial development and R&D e¤ort, which may lead to di¤erent types of dynamics. A successful economy exhibits a progressive increase in the variety of sectors, which in turn enhances the operation of …nancial markets. However, a poverty trap may also arise. This situation is characterised by a rudimentary productive structure with poor matching of skills to activities and severely ine¢ cient credit to talented entrepreneurs.

Wealth Inequality and the Exploration of Novel Alternatives

“…Second, the competitive screening framework of this paper shares many features with the occupational choice models by Grüner (2003), Jaimovich (2011), Inci (2013), and Spiganti (2020b, 1 where heterogeneous agents must choose between entrepreneurship and an outside option. Similarly to this paper, the contractual structure of the credit market introduces endogenous wealth classes, which receives different credit contracts.…”

The effects of economic activities diversification on development: The perspective of Serbia

“…Alonso-Carrera and Raurich (2010) showed that differences in sectors' structure, together with production factors endowment can influence achieving different economic growth rates. Jaimovich (2011) proposed a model where it is shown that differentiation of sectors, along with operation of financial markets can shape the patterns of development. According to Gilchrist et al (1995) regional industrial diversification policies have positive roles in growth of economic welfare.…”

Economic Sector Performance and Growth: Contemporary Approaches in the Context of Sustainable Development

“…Economic sectors (Jaimovich, 2011;Halkos, Tzeremes, 2008;Tanuwidjaja, Thangavelu, 2007;Sonobe et. al., 2004;, production (Bond et al, 2010;Sarkar, 2007;Briec, Cavaignac, 2007;Kosempel, 2004;Tvaronaviciene, Lankauskiene, 2013) and other different factors determining the development of economic sectors (e.g.…”