Finance, Technology and Inequality in Economic Development

Ryo Horii, Ryoji Ohdoi and Kazuhiro Yamamoto

No 05-08-Rev, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

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 f adoption of the currently used technology rather than the new one.

Keywords: Enforcement; Technological Switch; Income Distribution; Credit Rationing; Development Trap; Institutions. (search for similar items in EconPapers)
JEL-codes: O14 O16 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2005-04, Revised 2005-08
New Economics Papers: this item is included in nep-dev, nep-dge and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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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: https://EconPapers.repec.org/RePEc:osk:wpaper:0508r

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