Financial Fragility, Business Creation and Job Destruction

Etienne Wasmer (1) , Philippe Weil (2)

1 ECON - Département d'économie (Sciences Po)
2 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

We build a model of endogenous destruction with credit and labor market imperfections, represented by a matching process between financiers and entrepreneurs on one hand, and entrepreneurs and workers on the other hand. Business creation, credit opening and job destruction represent three active margins of the model. Financial imperfections lead to financial fragility. This implies the existence of a forth latent margin which may be activated in the case of repudiation of financial contracts. This paradigm is applied to the recent development of the U.S. economy. An empirical test in panel of OECD countries further suggests the importance of venture capital for macroeconomic variables.

Domains: Economics and Finance

Etienne Wasmer, Philippe Weil. Financial Fragility, Business Creation and Job Destruction. Recherches Economiques de Louvain - Louvain economic review, 2002, 68 (1-2), pp.185-202. ⟨10.3917/rel.681.0185⟩. ⟨hal-01017720⟩