Finance and Employment in Developing Countries: The Working Capital Channel
IMF Working Papers, August 15, 2017
Source details
- Canonical URL
- Finance and Employment in Developing Countries: The Working Capital Channel
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Bibliographic details
- Authors: Mai Dao, Lucy Qian Liu
- Published: August 15, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484314197.001
Main objective and approach
- Study the effect of external financing constraint on job creation in emerging markets and developing countries (EMDC) at the firm level by examining the working capital channel.
- Develop a simple model to illustrate how the need for working capital financing affects the link between financial constraint and a firm's job creation.
- Empirically test the model's main predictions using the World Bank Enterprise Surveys data.
Key analytical findings (model)
- The effect of relaxing financial constraint on job creation is greater:
- the smaller the firm scale, and
- the more labor-intensive the firm's production structure.
- The model focuses on the working capital financing requirement as the specific transmission channel linking external finance and firm employment.
Empirical findings (World Bank Enterprise Surveys)
- The authors find strong evidence for the working capital channel of external finance on firm employment.
- The empirical analysis is presented as tests of the model's main predictions using firm-level survey data.
Subjects and keywords
- Subject: Economic theory, Employment, Financial frictions, Job creation, Labor, Labor share
- Keywords: Central and Eastern Europe, Employment, employment growth, Financial constraint, Financial frictions, firm-level employment, fixed capital, job creation, Labor share, optimization problem, panel data, right-hand-side variable, small firm, survey database, working capital financing, WP
Content in this bundle
- Finance and Employment in Developing Countries: The Working Capital Channel, WP/17/189, August 2017