DP3026 Wealth Distribution and Self-Employment in a Developing Economy

Author(s): Alice Mesnard, Martin Ravallion
Publication Date: October 2001
Keyword(s): borrowing constraints, migration, self-employment, wealth inequality
JEL(s): D31, M13
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3026

The extent of entrepreneurial activity in an economy with poorly developed capital markets depends on the distribution of wealth, though in potentially complex ways. A non-parametric model of the wealth effect on self-employment is estimated using micro data on the occupational choices of return migrants in Tunisia. Controls for heterogeneity are included, and tests are made for selection bias and separability between wealth and the controls. There is no sign of increasing returns at low wealth, suggesting generally low start-up costs in this setting. The aggregate self-employment rate is an increasing function of aggregate wealth, but a decreasing function of wealth inequality, though even substantial redistributions of wealth would have only a small impact.