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Growth or equality ? Losers and gainers from financial reform

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  • AZARIADIS, Costas
  • de la CROIX, David

Abstract

We explore the consequences of liberalized credit markets for growth and inequality in a lifecycle economy with physical and human capital accumulation, populated by households of different abilities, and calibrated to match the longrun economic performance of a panel of emerging countries. Relatively modest improvements in extending credit to the ablest households appear to have large economic consequences: upfront costs (slower initial growth, higher income inequality) followed by delayed benefits (faster long-run growth). Reform also lowers lifecycle utility for a substantial majority of currently active households. Premature liberalization in the least developed countries (low TFP or capital intensity) may redirect economic growth towards a poverty trap.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002058.

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Date of creation: 00 Oct 2002
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Handle: RePEc:cor:louvco:2002058

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Keywords: Liberalization; credit constraint; poverty trap; human capital; emerging economies;

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References

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  1. Timothy J. Kehoe & David K. Levine, 1992. "Debt constrained asset markets," Working Papers 445, Federal Reserve Bank of Minneapolis.
  2. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
  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. De Gregorio, Jose & Kim, Se-Jik, 2000. "Credit Markets with Differences in Abilities: Education, Distribution, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 579-607, August.
  5. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  6. Costas Aariadis & John Stachurski, 2004. "Poverty Traps," Department of Economics - Working Papers Series 913, The University of Melbourne.
    • Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5 Elsevier.
  7. Javier Díaz-Giménez & Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Dimensions of inequality: facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-21.
  8. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
  9. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  10. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 1999. "What Drives Private Saving Across the World?," Working Papers Central Bank of Chile 47, Central Bank of Chile.
  11. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  12. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
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Cited by:
  1. T. Buyse & F. Heylen & R. Van De Kerckhove, 2012. "Pension reform in an OLG model with heterogeneous abilities," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/810, Ghent University, Faculty of Economics and Business Administration.
  2. David, DE LA CROIX, 2004. "Education and Growth with Endogenous Debt Constraints," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Winford H. Masanjala & Chris Papageorgiou, 2004. "The Solow model with CES technology: nonlinearities and parameter heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 171-201.
  4. Chris Papageorgiou & Shankha Chakraborty & Fidel Perez-Sebastian, . "Diseases and Development," Departmental Working Papers 2005-12, Department of Economics, Louisiana State University.

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