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Financial Imperfections, Inequality and Capital Accumulation

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  • Mahmoud Sami Nabi

    (LEGI – Tunisia Polytechnic School and University of Sousse - IHEC)

Abstract

Aghion, P. and P. Bolton (1997, "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, 59, 151-172) provide a model analyzing the effect of capital accumulation on income inequality. We integrate two additional features to a modified version of this model. The first one is a costly financial contract enforcement which represents the second type of credit market imperfection in addition to moral hazard. The second one is enabling wealthy agents to undertake larger investment projects relatively to other agents. I show that inequality increases in a first stage of development and, contrarily to Aghion and Bolton (1997), remains constant or increases in a second stage (depending on the deposit interest rate ceiling).

Suggested Citation

  • Mahmoud Sami Nabi, 2009. "Financial Imperfections, Inequality and Capital Accumulation," Economics Bulletin, AccessEcon, vol. 29(3), pages 2388-2403.
    • Handle: RePEc:ebl:ecbull:eb-09-00276
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    References listed on IDEAS

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    1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-1198, December.
    2. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    3. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    4. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    5. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 151-172.
    6. Banerjee, Abhijit V. & Duflo, Esther, 2005. "Growth Theory through the Lens of Development Economics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 7, pages 473-552, Elsevier.
    7. Laeven, Luc & Majnoni, Giovanni, 2005. "Does judicial efficiency lower the cost of credit?," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1791-1812, July.
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    Cited by:

    1. Nabi, Mahmoud Sami, 2021. "لتشع تونس من جديد [Making the Tunisian Resurgence]," MPRA Paper 107225, University Library of Munich, Germany.
    2. Nabi, Mahmoud Sami, 2012. "Profit Sharing, Income Inequality and Capital Accumulation," MPRA Paper 49830, University Library of Munich, Germany.

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    More about this item

    Keywords

    Financial imperfections; inequality; capital accumulation.;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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