We use new data from rural and semi-urban Thailand to examine how financial constraints affect entrepreneurial activity. The analysis uses nonparametric and reduced form techniques. The results indicate that financial constraints play an important role in shaping the patterns of entrepreneurship in Thailand. In particular, wealthier households are more likely to start businesses. Wealthier households are also more likely to invest more in their businesses and face fewer constraints. We also provide evidence that financial constraints place greater restrictions on entrepreneurial activity in the poor Northeast compared to the more developed Central region.

We investigate the impact of institutions on financial development by analyzing the financial behavior of immigrants in the United States. We find that immigrants from countries with institutions that more effectively protect private property are more likely to own stock in the United States. The effect of home-country institutions is persistent and absorbed early in life. The impact of institutions is amplified for immigrants who live in metropolitan areas with many other immigrants from the same country. These findings are robust to alternative measures of institutional effectiveness and to various methods of controlling for unobserved individual characteristics, including specifications with country fixed effects.

We present and estimate a model in which the choice between entrepreneurship and wage work may be influenced by financial market imperfections. The model allows for limited liability, moral hazard, and a combination of both constraints. The paper uses structural techniques to estimate the model and identify the source of financial market imperfections using data from rural and semiurban households in Thailand. Structural, nonparametric, and reduced‐form estimates provide independent evidence that the dominant source of credit market imperfections is moral hazard. We reject the hypothesis that limited liability alone can explain the data.