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Growth or equality ? Losers and gainers from financial reform

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  • Costas AZARIADIS

    (UCLA, Los Angeles)

  • David DE LA CROIX

    (FNRS - Belgium, IRES and CORE - UCL - Belgium)

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 long-run 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 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, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2002036.

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Length: 48
Date of creation: 01 Oct 2002
Date of revision:
Handle: RePEc:ctl:louvir:2002036

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

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  1. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  2. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 579-607, August.
  3. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers, Harvard - Institute for International Development 537, Harvard - Institute for International Development.
  4. Costas Aariadis & John Stachurski, 2004. "Poverty Traps," Department of Economics - Working Papers Series, The University of Melbourne 913, The University of Melbourne.
  5. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers, C.E.P.R. Discussion Papers 662, C.E.P.R. Discussion Papers.
  6. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 1999. "What Drives Private Saving Across the World?," Working Papers Central Bank of Chile, Central Bank of Chile 47, Central Bank of Chile.
  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, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-21.
  8. De Gregorio, Jose, 1996. "Borrowing constraints, human capital accumulation, and growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(1), pages 49-71, February.
  9. Timothy J Kehoe & David K Levine, 1993. "Debt Constrained Asset Markets," Levine's Working Paper Archive 1276, David K. Levine.
  10. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  11. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 501-26, May.
  12. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 352.
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Cited by:
  1. Chris Papageorgiou & Shankha Chakraborty & Fidel Perez-Sebastian, . "Diseases and Development," Departmental Working Papers, Department of Economics, Louisiana State University 2005-12, Department of Economics, Louisiana State University.
  2. DE LA CROIX, David & MICHEL, Philippe, 2004. "Education and growth with endogenous debt constraints," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2004074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. 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, Ghent University, Faculty of Economics and Business Administration 12/810, Ghent University, Faculty of Economics and Business Administration.
  4. Winford H. Masanjala & Chris Papageorgiou, 2004. "The Solow model with CES technology: nonlinearities and parameter heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(2), pages 171-201.
  5. Guido Baldi, 2013. "Physical And Human Capital Accumulation And The Evolution Of Income And Inequality," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, Chung-Ang Unviersity, Department of Economics, vol. 38(3), pages 57-83, September.

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