title: Essays on financial liberalisation and entrepreneurial occupational choice
Creators: name: Solodarenko, Maksym
Publisher: name: University of Glasgow
Year: 2024

description: This thesis examines the effects of financial liberalisation on entrepreneurial occupational choice, inequality and productivity. Moreover, the thesis considers both short- and longrun consequences of financial liberalisation by studying the dynamics of the economy post-financial liberalisation. I complement the study with a discussion on occupational mobility’s importance for the outcome of financial liberalisation. 
The first chapter employs a version of a heterogeneous agents dynamic stochastic general equilibrium model in the style of Allub and Erosa (2018) to study the effects of financial liberalisation on occupational choice, inequality and productivity. The model introduces the problem of occupational choice to households such that the distribution of households across occupations becomes an endogenous part of the model. Calibrating the model to Italy over the period from 2000 to 2018, which experienced a large decrease in the share of sole proprietors that coincided with increased financial liberalisation, allows me to study the effects of financial liberalisation on a developed economy with high occupational mobility. This first chapter sets the scene by comparing the stationary equilibria of economies with different levels of financial liberalisation. The comparison uncovers the relationship between the level of financial liberalisation and corresponding equilibrium levels of income and wealth inequality across and within occupations. The results show that financial liberalisation leads to positive outcomes for the economy, and notably to decreasing both income and wealth inequality across occupations. In contrast, there is an increase in both income and wealth inequality among workers as a result of financial liberalisation. Financial liberalisation is connected to improved productivity through an increase in the marginal product of labour. Interestingly, these gains come alongside a substantial reduction in the share of households that choose to be sole proprietors. 
The second chapter expands the discussion and analysis of financial liberalisation by focusing on the short-run effects and on the transition dynamics that take place after a financial liberalisation has occurred. To discuss the short-run dynamics of the economy post-financial liberalisation, I extend the model studied in the first chapter with the transition from pre- to post-liberalised economy. The dynamics are investigated in the style of Ríos-Rull (1994) and Krusell and Smith (2006). This second chapter shows that most sole proprietors become workers or employers in the short run, which implies an increase in occupational mobility. Furthermore, the majority of changes to the allocation of households across occupations occur within the first five years, indicating that financial liberalisation has a strong, quick and long-lasting effect on the labour market. The findings highlight that a sudden financial liberalisation increases the costs of entrepreneurship hurting the income of entrepreneurs. However, a sudden financial liberalisation also leads to a higher share of workers benefiting from increased wages. Thus, the surprising result is that workers are the primary beneficiaries of the sudden removal of borrowing constraints for entrepreneurs. Moreover, there are larger reductions in both income and wealth inequalities among workers, compared to the changes in inequalities among employers. 
The third chapter investigates the significance of occupational mobility for the outcome of financial liberalisation. For this purpose, I extend the model analysed in the previous chapters with a mechanism to enable or disable occupational mobility for counterfactual exercises. Therefore, the importance of occupational mobility is measured by comparing the outcomes of a sudden financial liberalisation with and without occupational mobility. This chapter finds that the presence of occupational mobility during financial liberalisation leads to higher equilibrium wage rates while minimally affecting interest rates. This result is attributed to occupational mobility enabling efficient skills-matching and, as a result, increasing labour demand. Moreover, I show that the presence of occupational mobility contributes up to half of the total effects of financial liberalisation, influencing outcomes such as reduced income and wealth inequality and increased aggregate output. Notably, improved occupational mobility is identified as a key factor contributing up to half of the total rise in productivity following financial liberalisation. Overall, this chapter shows that households’ ability to choose their occupation has a large positive effect on the outcome of financial liberalisation.