Credit Markets with Differences in Abilities: Education, Distribution, and Growth

Jose De Gregorio and Se-Jik Kim

No 42, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: An endogenous growth model is presented in which the existence of credit markets affects time allocation of individuals who differ in education abilities. Credit markets allow the more able to specialize in studying and the less able in working. This specialization can increase growth and welfare by accelerating an economy's human capital accumulation. This paper also shows that in economies with high (low) average level of education abilities, the opening of credit markets will induce a more disperse (equal) income distribution. The role of intergenerational transfers within a family in overcoming the absence of credit markets is also discussed. Finally, we discuss the growth effect of credit markets in the case of imperfect credit markets, where people can save using storage but cannot borrow.

Date: 1998
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Related works:
Journal Article: Credit Markets with Differences in Abilities: Education, Distribution, and Growth (2000)
Working Paper: Credit Markets with Differences in Abilities: Education, Distribution, and Growth (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:42

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