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

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  • José De Gregorio

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  • Se-Jik Kim

Abstract

An endogenous growth model is presented in which the existence of credit markets affects time allocation of individuals who differ in education abilities. Credit markets allow the more able to specialize in studying and the less able in working. This specialization can increase growth and welfare by accelerating an economy's human capital accumulation. This paper also shows that in economies with high (low) average level of education abilities, the opening of credit markets will induce a more disperse (equal) income distribution. The role of intergenerational transfers within a family in overcoming the absence of credit markets is also discussed. Finally, we discuss the growth effect of credit markets in the case of imperfect credit markets, where people can save using storage but cannot borrow.

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Bibliographic Info

Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 42.

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Date of creation: 1998
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Handle: RePEc:edj:ceauch:42

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Cited by:
  1. David De La Croix & Michel Lubrano, 2009. "The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model," Working Papers halshs-00382513, HAL.
  2. Das, Satya P., 2006. "Trade, skill acquisition and distribution," Journal of Development Economics, Elsevier, vol. 81(1), pages 118-141, October.
  3. AZARIADIS, Costas & de la CROIX, David, 2002. "Growth or equality ? Losers and gainers from financial reform," CORE Discussion Papers 2002058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Ryo Horii & Akiomi Kitagawa & Koichi Futagami, 2003. "Availability of Higher Education and Long-Term Economic Growth," Discussion Papers in Economics and Business 03-14-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Sep 2005.
  5. David Croix & Philippe Michel, 2007. "Education and growth with endogenous debt constraints," Economic Theory, Springer, vol. 33(3), pages 509-530, December.
  6. Palivos, Theodore & Varvarigos, Dimitrios, 2011. "Intergenerational complementarities in education, endogenous public policy, and the relation between growth and volatility," MPRA Paper 31343, University Library of Munich, Germany.
  7. Erasmo Papagni, 2008. "The Long-run Effects of Household Liquidity Constraints and Taxation on Fertility, Education, Saving, and Growth," Discussion Papers 11_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  8. Alex Trew, 2005. "Finance and Growth: A Critical Survey," CDMA Working Paper Series 200507, Centre for Dynamic Macroeconomic Analysis, revised 15 Apr 2006.
  9. Conceição Pereira, 2003. "The Effects of Households’ and Firms’ Borrowing Constraints on Economic Growth," GEMF Working Papers 2003-04, GEMF - Faculdade de Economia, Universidade de Coimbra.

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