We find that investor sentiment should affect a firm's employment policy in a world with moral hazard and noise traders. Consistent with the model's predictions, we show that higher sentiment among US investors leads to: (1) higher employment growth worldwide; (2) lower labor productivity, as the...

This survey reviews the literature on the political economy of financial structure, broadly defined to include the size of capital markets and banking systems as well as the distribution of access to external finance across firms.The theoretical literature on the institutional basis for...

This paper reviews the theoretical and empirical literature on links between domestic financial development and economic growth. It starts with the pioneers in this field and then classifies two main schools favouring liberal financial regimes. First McKinnon and Shaw advocated financial...

We develop a model of endogenous lobby formation in which wealth inequalityand political accountability undermine entry and financial development. In-cumbents seek a low level of effective investor protection to prevent potentialentrants from raising capital. They succeed because they can...

While financial liberalization has in general favorable effects, reforms in countries with poor regulation is often followed by financial crises. We explain this variation as the outcome of lobbying interests capturing the reform process. Even after liberalization, market investors must rely on...

We exploit the introduction of free banking laws in US states during the 1837-1863 period to examine the impact of removing barriers to bank entry on bank competition and economic growth. As governments were not concerned about systemic stability in this period, we are able to isolate the...

The need to absorb windfalls gains and manage them appropriately has been discussed extensively by academics and policy makers alike. We explore the role of the financial sector in intermediating these windfalls. Controlling for the level of financial development, inflation, GDP growth and...

Entry requires external finance, especially for less wealthy entrepreneurs, so poor investor protection limits competition. We model how incumbents lobby harder to block access to finance to entrants when politicians are less accountable to voters. In a broad cross-section of countries and...

This paper explores how a conditional cash transfer program influences students' schooling decisions when program payments stop in the middle of the school career. To that end, I examine Mexico's Progresa, which covered students only until the end of middle school (at age 15) in its early years....

We propose a dynamic factor model which we use to analyze the relationship between education participation and national unemployment, as well as to forecast the number of students across the many different types of education. By clustering the factor loadings associated with the dynamic...