“Knockin’ on the Bank’s Door: The Impact of U.S. Bank Branch Closures on Self-Employment Dynamics"  (2024)  forthcoming at the Southern Economic Journal

The U.S. bank branch network has contracted since the 2010s, limiting borrowers' access to credit institutions. This paper analyzes the changes in banks' branch concentration and their effect on borrowers' choices of being self-employed. To evaluate the impact of the bank branch closings, I use a shift-share research design to assess self-employment exits using zip code variation in preexisting bank market shares. I disaggregate the self-employed into two categories: entrepreneurs whose businesses depend on business loans (incorporated self-employed) and other self-employed individuals (unincorporated self-employed). Using a Community Advantage Panel Survey, I find that the proximity of credit market institutions has heterogeneous effects on self-employment exits. While bank branch closures lead to a decline in incorporated businesses, particularly within a five-mile radius, unincorporated businesses appear insignificantly affected.

Online Appendix.

Working papers

How do informal lending institutions affect entrepreneurship? The paper investigates the role of formal and informal credit market institutions in the decision to become an entrepreneur over the life cycle. I developed a dynamic Roy model in which a decision to become an entrepreneur depends on the access to formal and informal credit markets, non-pecuniary benefits of entrepreneurship, career-specific entry costs, prior work experience, education, unobserved abilities, and other labor market opportunities (salaried employment and non-employment). Using detailed Russian panel microdata (the RLMS survey) and estimating a structural model of labor market decisions and borrowing options, I assess the impact of the development of informal and formal credit institutions. The expansion of traditional (formal) credit market institutions positively impacts all workers' categories, reduces the share of entrepreneurs who borrow from informal sources, and incentivizes low-type entrepreneurs to switch to salaried employment. The development of the informal credit market reduces the percentage of high-type entrepreneurs who borrow from formal sources. In the case of default, a higher value of the social network or higher costs of losing social ties demotivate low-type entrepreneurs to borrow from informal sources. I highlight the practical implications of estimates by evaluating policies designed to promote entrepreneurship, such as subsidies and accessibility regulations in credit market institutions.

"Beyond Banks: Navigating the Shift to Peer-to-Peer Lending for Small Enterprises" with Alex Weng

This study sheds light on how non-traditional lending avenues, specifically peer-to-peer (P2P) lending platforms, influence the financing decisions of small businesses. It introduces a theoretical framework where borrowers weigh the option between opting for a cost-effective traditional bank loan versus an expensive option through crowdlending platforms. The findings suggest that crowdlending platforms become a more appealing choice in the event of credit supply disruptions in traditional banking sectors. Leveraging the phased introduction of mobility restrictions during the COVID-19 pandemic as a case study, our research demonstrates a noticeable pivot of small businesses towards alternative funding sources, such as P2P lending. These findings emphasize the value of offering a variety of financial tools to small businesses so they can weather economic storms.

Vocational Education Training and Entrepreneurship 

The paper investigates the role of vocational education in the decision to become an entrepreneur. Little is known about how cognitive and non-cognitive skills and vocational education shape transitions into entrepreneurship. We study the role of skills in the decision to become an entrepreneur using the Transition from Education to Employment (TREE) study data from Switzerland. We develop a dynamic choice model in which a decision to become an entrepreneur depends on unobserved types of individuals, education, prior work experience, cognitive and non-cognitive skills, and other individual characteristics. Parameter estimates indicate that the main deterrents to becoming an entrepreneur are cognitive skills in STEM fields (math and science) and the diversification of acquired skills. 

Labor Informality and Credit Market Development" (2018) with Klara Peter

The paper investigates the effects of the credit market development on the labor mobility between the informal and formal labor sectors. In the case of Russia, due to the absence of a credit score system, a formal lender may set a credit limit based on the verified amount of income. To get a loan, an informal worker must first formalize his or her income (switch to a formal job), and then apply for a loan. To show this mechanism, the RLMS data was utilized, and the empirical method is the dynamic multinomial logit model of employment. The empirical results show that a relaxation of credit constraints increases the probability of transition from an informal to a formal job, and improved credit market accessibility (CMA) by one standard deviation increases the chances of informal sector workers to formalize by 5.4 ppt. These results are robust in different specifications of the model. Policy simulations show strong support for a reduction in informal employment in response to better CMA in credit-constrained communities. 

Mobile Money and Labor Informality in Sub-Saharian Africa 

This paper investigates the impact of mobile money on labor informality among entrepreneurs. I combine cell phone coverage maps (Collins Mobile Coverage, GSMA data) with households' locations from the Financial Inclusion Insights database to accurately pinpoint which locations were exposed to coverage. Results from fuzzy spatial discontinuity design provide considerable evidence that access to cell phone coverage deters labor informality.  I investigate possible mechanisms of reduction of labor informality. First, I show that using mobile money causes income growth for individuals, an increase in the number of new businesses, and higher profitability for their businesses. It’s consistent with the literature showing that the growth of businesses is associated with a reduction of labor informality. Second, it's improved access to the credit market and forced formalization of income. Third, using mobile money allows the government and banks to control financial flows.

Work in Progress

Winners from Corporate R&D: Labor Mobility and Firms Strategies