Credit access, human capital and class structure mobility

Abstract

This article examines the impact of microenterprise credit programmes on class structure mobility in developing countries. It develops a model that endogenously generates an eight‐fold class structure. Class membership is determined by optimal choice of labour activity, which is a function of access to credit and human capital endowments. Predictions from the model suggest that better access to credit will foster upward class mobility among self‐employed entrepreneurs, and that this upward class mobility will be accentuated among entrepreneurs with high levels of human capital. Theoretical predictions from the model are compared with data on class structure mobility collected first‐hand in western Guatemala. Empirical results show that upward class structure mobility increases substantially with access to credit, and also suggest that the combined effect of innate entrepreneurial ability and credit access has a greater impact on upward class structure mobility than the interaction between formal schooling and credit access.