for a variety of occupational<sup>structures,i.e.firmsof varioussizes,e.g.,withandwithoutlabor,andat</sup> various levels of capitalization.<sup>Ithas a general(approximated) productiontechnology,one whichallows</sup> labor share to vary. In addition,<sup>thehouseholdoccupationalchoicehasaclosedformsolutionthat can</sup> easily be estimated. Finally,<sup>itfeaturesa dualeconomydevelopmentmodelwhich hasantecedentsgoing</sup> back to Lewis (1954) and<sup>Feiand Ranis(1964),and thusitcapturesseveralwidelyobservedaspects</sup> of the development process:<sup>industrializationwithpersistentincomedifferentials,aslowdeclineinthe</sup> subsistence sector, and an<sup>eventual increase in wages,all contributing to growthwith changinginequality.</sup> Our extension of the LEB<sup>modelhas twosectors, onewithoutintermediationand theotherallowing</sup> borrowing and lending at<sup>a marketclearinginterestrate.Theintermediatedsectoris allowedto expand</sup> exogenously at the observed<sup>rateintheThaidata,giveninitialparticipationandtheinitialobserved</sup> distribution of wealth.<sup>Ofcourseinothercontexts andformanyquestionsonewouldlikefinancial</sup> deepening to be endogenous<sup>4.</sup> But here the exogeneity<sup>offinancialdeepeninghasapeculiar,distinct</sup> advantage because we can<sup>varyit aswe like,either to mimicthe Thaidata withits acceleratedupturns</sup> in the late 80's and early<sup>90's,orkeep itflatprovidinga counterfactualexperiment.Wecanthus gauge</sup> the consequences of these<sup>variousexperimentsandcompareamongthem.In short,we can dogeneral</sup> equilibrium policy analysis<sup>followingtheseminalwork of Lochner, HeckmanandTaber(1998),despite</sup> endogenous prices and an<sup>evolvingendogenousdistributionofwealthina model where preferencesdo</sup> not aggregate We use the explicit structure<sup>of the modelas givenintheoccupationchoiceandinvestment decision</sup> of households to estimate certain<sup>parametersof the model.Key parametersof theproductiontechnology</sup> used by firms and the distribution<sup>of entrepreneurialtalentin the population are chosento maximizethe</sup> likelihood as predicted by<sup>the model of the transition intobusinessgiven initialwealth. This is donewith</sup> two distinct microeconomic<sup>datasets,onea seriesof nationallyrepresentativehouseholdsurveys(SES),</sup> and the other gathered under<sup>aprojectdirectedby oneof theauthors,withmorereliableestimatesof</sup> wealth, the timing of occupation<sup>transitions,and the use of formal andinformalcredit.Not all parameters</sup> of the model can be estimated<sup>via maximumlikelihood.The savingsrate,the differentialinthe costof</sup> living, and the exogenous<sup>technicalprogressinthe subsistence sectorarecalibratedto try tomatch the</sup> two decades of Thai growth<sup>andobserved changesininequality,laborshare,savingsandthe numberof</sup> entrepreneurs.

As mentioned before, this<sup>structural,estimatedversion of the Thaieconomy canthen be comparedto</sup> what would have happened<sup>if there had been no expansionin the size of the intermediatedsector.Without</sup> liberation, at estimated parameter<sup>valuesfrombothdatasets,themodelpredictsadramaticallylower</sup> growth -rate, high residual subsistence<sup>sector, non-increasingwages,and,granted,loweranddecreasing</sup> inequality. Thus financial<sup>liberalizationappearstobetheengineof growthit issometimes claimedto</sup> be, at least in the context<sup>of Thailand.</sup> However, growth and liberalization<sup>do have uneven consequences,as the critics insist.The distribution</sup> of welfare gains and losses<sup>in theseexperimentsis not at alluniform,as there are various effectsdepending</sup> on wealth and talent: with<sup>liberalization,savingsearn interest,althoughthis tends tobenefit the wealthy</sup> most. On the other hand,<sup>creditisavailabletofacilitate occupationshiftsandto financesetupcosts</sup> and investment. Quantitatively, there is a<sup>strikingconclusion.</sup> The primary winners from<sup>financial</sup> liberalization are talented<sup>butlowwealthwould-beentrepreneurswhowithoutcreditcannotgointo</sup> business at all or entrepreneurs<sup>withverylittle capitalMeangains fromthe winnersrangefrom60,000</sup> 4 See Greenwood **and** Jovanovic (1990) or Townsend and Ueda (2001).

3