Cover IMF Working Papers
Buy Book in Print
Finance and Employment in Developing Countries: The Working Capital Channel
Author:
Mai Dao null

Search for other papers by Mai Dao in
Current site
Google Scholar Close
and
Lucy Qian Liu
Search for other papers by Lucy Qian Liu in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 189
Language:
English
Publication Date:
15 Aug 2017
DOI:
https://doi.org/10.5089/9781484314197.001
ISBN:
9781484314197
ISSN:
1018-5941
Pages:
47
Keywords:
WP; employment growth; fixed capital; Financial constraint; firm-level employment; job creation; working capital financing; survey database; optimization problem; small firm; right-hand-side variable; panel data; Employment; Financial frictions; Labor share; Central and Eastern Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.7 MB) Download Epub
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.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund