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Bridging the Gaps: Credits, Adoption, and Inequality

Maria Elisa Farias, Javier Scavia and Raul Fuentes

Journal of Money, Credit and Banking, 2019, vol. 51, issue 5, 1355-1401

Abstract: We examine here the role of credits on technology adoption and inequality from the perspective of developing countries. Utilizing a model of exogenous growth, with heterogeneous labor and technical progress embodied in physical capital, we find that credits can contribute to a faster adoption and to reducing income inequality. Thus, a virtuous cycle of credits, a shorter technological gap, less inequality, and economic growth is feasible to be created when there is full liquidity in the market. When credits are constrained, the cycle loses virtuosity, where the economy can lose up to two points in growth due to credit constraints.

Date: 2019
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Handle: RePEc:wly:jmoncb:v:51:y:2019:i:5:p:1355-1401