The Gains from Financial Inclusion: Theory and a Quantitative Assessment ∗ Timothy Besley LSE and CIFAR Konrad Burchardi IIES, Stockholm Maitreesh Ghatak LSE March 15, 2019 Abstract This paper calibrates a general equilibrium model with contracting frictions, where agents differ in entrepreneurial ability and wealth, to study the benefits of financial in- clusion. Alongside frictions due to moral hazard and limited liability, we also vary mar- ket access. As a benchmark, we calibrate the model to US default probabilities and the firm-size distribution. The calibrated counterfactuals that we generate show that financial inclusion is quantitatively much more important than contracting frictions. The main ben- eficiaries from extending credit market access are wage labourers; moving from aurtaky to full-inclusion increases the wage from 40% to 90% of the US wage. JEL Classification: E44, G28, O16 Keywords: Financial Inclusion, Entrepreneurship. Employment Creation * We are grateful to the ESRC-DFID growth research program for financial support (Grant reference ES/L012103 /1). We thank Francisco Buera, Joe Kaboski, and Rachael Meager for helpful comments on an earlier draft. We have received valuable research assistance from the following summer interns from the Indian Statistical Institute, Delhi funded by the grant: Kanishak Goyal, Pallavi Jindal, Kosha Modi, Tanmay Sahni, and Saurav Sinha. 1