In most developing nations, formal workers tend to be more experienced and educated than informal workers, a fact often interpreted as evidence that low-skill workers face barriers to entry into the formal sector. Yet, there exists little direct evidence that labor markets are segmented in those...

We present a model in which the importance of financial intermediation for development can be measured. We generate financial differences by varying the degree to which contracts can be enforced. Economies where enforcement is poor employ less capital and less efficient technologies. Calibrated...