On Capital Market Imperfections as a Source of Low TFP and Economic Rents
Andres Erosa () and
Ana Hidalgo-Cabrillana ()
Working Papers from University of Toronto, Department of Economics
We propose a theory in which capital market imperfections are at the origin of cross-country TFP differences. In our theory entrepreneurs have private information about the multifactor productivity of their technology. We study how the contracting environment, as described by the ability to enforce contracts, affects the provision of incentives and resource allocation to and across entrepreneurs. Our theory implies that countries with a low ability to enforce contracts use inefficient technologies in equilibrium and are characterized by differences in productivity across industries. These implications of our theory are supported by the empirical evidence. Our theory also suggests that entrepreneurs have a vested interest in maintaining a status quo with low enforcement since it allows them to extract rents from the factor services they hire.
Keywords: Capital market imperfections; Total factor productivity, Relative price distortions; Taxation. (search for similar items in EconPapers)
JEL-codes: O40 O16 J24 D24 (search for similar items in EconPapers)
Pages: 43 pages
New Economics Papers: this item is included in nep-bec, nep-dev and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23) Track citations by RSS feed
Downloads: (external link)
https://www.economics.utoronto.ca/public/workingPapers/tfperosa.pdf Main Text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-200
Access Statistics for this paper
More papers in Working Papers from University of Toronto, Department of Economics 150 St. George Street, Toronto, Ontario.
Bibliographic data for series maintained by RePEc Maintainer ().