The Role of Skilled Labor in Income-based Government-directed Bank Lending

Authors

Indraneel Chakraborty, University of Miami - Department of FinanceFollow
Vidhi Chhaochharia, University of Miami - Department of FinanceFollow
Rong Hai, University of Miami - School of Business Administration - Department of EconomicsFollow
Prithu Vatsa, Southern Methodist University (SMU) - Finance DepartmentFollow

Publication Date

4-2-2024

Abstract

We show that when governments direct banks to lend based on income, the outcomes differ by how closely capital matches the availability of skilled labor in the target population. We document that when skilled labor in the target area is high, additional credit is absorbed in small businesses and future welfare outlays are reduced. In contrast, if skilled labor is relatively low, then capital flows to mortgages and results in housing price growth. Our results point towards the importance of developing skilled labor, alongside credit-provision, for overall development of under-privileged communities.

Document Type

Article

Keywords

bank lending, skilled labor

Disciplines

Finance

DOI

10.2139/ssrn.4198471

Source

SMU Cox: Finance (Topic)

Language

English