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File2-page113 - Credit and Micronance offered smaller loans...

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Credit and Microfinance offered smaller loans relative to where monitoring was costless Poverty Traps without multiple market failures – marginal product of an individual in an occupation should not reflect any endowment effects and hence should not be explainable by parent’s wealth However, even in developed countries – observe that credit market con- straints limit entry to entrepreneurial activities endowments matter! – econometric evidence shows that wealthier indi- viduals more likely to become entrepreneur, not because they have greater ability but because liquidity constraints bind less strongly Two reasons for this – (a) use inherited wealth to finance fixed costs of setting up own project (b) use inherited wealth/assets as collateral to gain access to credit mar- kets to finance own project Poor in contrast – (a) may have not inherited sufficient wealth to enable them to incur fixed
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