We study the effect of external financing constraint on job creation in emerging markets and
developing countries (EMDC) at the firm level by looking at a specific transmission channel
- the working capital channel. We develop a simple model to illustrate how the need for
working capital financing of a firm affects the link between financial constraint and the firm's
job creation. We show that the effect of relaxing financial constraint on job creation is greater
the smaller the firm scale and the more labor-intensive its production structure. We use the
World Bank Enterprise Surveys data to test the main predictions of the model, and find
strong evidence for the working capital channel of external finance on firm employment.
This paper provides a model on how altruism, "attachment" to the home country, and portfolio diversification may act as potential motives behind workers' remittances. It shows that the level of workers' remittances depends on how great are their degrees of altruism and "attachment" to their home country, and should also depend on interest rate differentials between the home country and the country of residence if portfolio diversification motives are significant in the decision to remit. The model is applied to Morocco using co-integration techniques. The paper then discusses the stability of remittances in Morocco and the policy implications in light of the empirical findings.
This paper uses a simple model to analyze the forces that determine the size of the public sector and the quality of workers employed in that sector. Workers are heterogeneous, and the public sector chooses an employment strategy that maximizes a social welfare function U(s, Y) that depends on the share of the labor force employed in public service s and private sector output Y. The government is fully informed about worker productivity. By examining the welfare properties of the possible outcomes, we are able to illuminate situations in which policies that seek to constrain the public sector may or may not improve economic efficiency.