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

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  • De Gregorio, Jose
  • Kim, Se-Jik

Abstract

This article presents an endogenous growth model in which credit markets affect time allocation of individuals with different educational abilities. Credit markets allow the more able to specialize in studying and the less able to specialize in working. This specialization can increase growth and welfare. This article also shows that in economies with high (low) levels of education abilities, the opening of credit markets induces a more disperse (equal) income distribution. The role of intergenerational transfers in overcoming the absence of credit markets is also discussed, as well as other forms of credit markets imperfections. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 41 (2000)
Issue (Month): 3 (August)
Pages: 579-607

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Handle: RePEc:ier:iecrev:v:41:y:2000:i:3:p:579-607

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References

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  1. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  2. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  3. De Gregorio, Jose, 1996. "Borrowing constraints, human capital accumulation, and growth," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 49-71, February.
  4. Guiso, Luigi & Jappelli, Tullio, 1991. "Intergenerational transfers and capital market imperfections : Evidence from a cross-section of Italian households," European Economic Review, Elsevier, vol. 35(1), pages 103-120, January.
  5. Hongyi Li & Lyn Squire & Heng-fu Zou, 1998. "Explaining International and Intertemporal Variations in Income Inequality," CEMA Working Papers 73, China Economics and Management Academy, Central University of Finance and Economics.
  6. Nancy L. Stokey, 1990. "Human Capital, Product Quality, And Growth," NBER Working Papers 3413, National Bureau of Economic Research, Inc.
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  8. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
  9. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  10. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  11. Greenwood, J. & Smith, B.D., 1995. "Financial Markets in Development, and the Development of Financial Markets," RCER Working Papers 406, University of Rochester - Center for Economic Research (RCER).
  12. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
  13. Behrman, Jere R & Pollak, Robert A & Taubman, Paul, 1989. "Family Resources, Family Size, and Access to Financing for College Education," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 398-419, April.
  14. Pablo Emilio Guidotti & Jose De Gregorio, 1992. "Financial Development and Economic Growth," IMF Working Papers 92/101, International Monetary Fund.
  15. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
  16. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 195-209, April.
  17. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
  18. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  19. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  20. Laitner, John, 1993. "Long-run equilibria with borrowing constraints and altruism," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 65-96.
  21. Kim, Se-Jik & Kim, Yong Jin, 2000. "Growth gains from trade and education," Journal of International Economics, Elsevier, vol. 50(2), pages 519-545, April.
  22. Galor, Oded & Tsiddon, Daniel, 1997. " The Distribution of Human Capital and Economic Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 93-124, March.
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