Finance, Technology and Inequality in Economic Development

Ryo Horii, Ryoji Ohdoi () and Kazuhiro Yamamoto ()

Development and Comp Systems from EconWPA

Abstract: This paper presents an overlapping generations model with technology choice and credit market imperfections, in order to investigate a possible source of underdevelopment. The model shows that a better financial infrastructure that provides stronger enforcement of contracts facilitates the development of financial markets, which, in turn, enables firms to switch to more productive and capital-intensive technologies, thereby promoting economic development. In the presence of credit rationing, however, this technological switch widens inequality. Therefore, risk-averse agents would not be willing to improve the financial infrastructure to the level at which the technological switch occurs, resulting in a development trap. A remedy is to facilitate small firms' adoption of the currently used technology rather than the new one.

Keywords: Enforcement; Technological Switch; Income Distribution; Credit Rationing; Institutions. (search for similar items in EconPapers)
JEL-codes: O14 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-dge
Date: 2005-04-12, Revised 2005-07-31
Note: Type of Document - pdf; pages: 40
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http://129.3.20.41/eps/dev/papers/0504/0504004.pdf (application/pdf)

Related works:
Working Paper: Finance, Technology and Inequality in Economic Development (2005)
Working Paper: Finance, Technology and Inequality in Economic Development (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpdc:0504004

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