Professor Pavel Ševčík publishes in the Canadian Journal of Economics

Pavel Ševčík
Département des sciences économiques, ESG UQAM
Rui Castro
Department of Economics, CIREQ, McGill University

Abstract
We study the aggregate productivity effects of firm-level financial frictions. Credit constraintsaffect not only production decisions but also household-level schooling decisions. In turn, entrepreneurialschooling decisions impact firm-level productivities, whose cross-sectional distribution becomes endoge-nous. In anticipation of future constraints, entrepreneurs underinvest in schooling early in life. Frictionslower aggregate productivity because talent is misallocated across occupations and capital is misallocatedacross firms. Firm-level productivities are also lower due to schooling distortions. These effects com-bined account for between 36% and 68% of the US–India aggregate productivity difference. Schoolingdistortions are the major source of aggregate productivity differences.

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