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Credit Rationing, Risk Aversion and Industrial Evolution in Developing Countries

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  • Eric Bond
  • James R. Tybout
  • Hâle Utar

Abstract

Relative to their counterparts in high-income regions, entrepreneurs in developing countries face less efficient financial markets, more volatile macroeconomic conditions, and higher entry costs. This paper develops a dynamic empirical model that links these features of the business environment to cross-firm productivity distributions, entrepreneurs’ welfare, and patterns of industrial evolution. Applied to panel data on Colombian apparel producers, the model yields econometric estimates of a credit market imperfection index, the sunk costs of creating a new business, and a risk aversion index (inter alia). Model-based counterfactual experiments suggest that improved intermediation could dramatically increase the return on assets for entrepreneurial households with modest wealth, and that the gains are particularly large when the macro environment is relatively volatile.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14116.

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Date of creation: Jun 2008
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Handle: RePEc:nbr:nberwo:14116

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Cited by:
  1. Demir, Firat & Caglayan, Mustafa, 2012. "Firm Productivity, Exchange Rate Movements, Sources of Finance and Export Orientation," MPRA Paper 37397, University Library of Munich, Germany.
  2. Torben Klarl & Alfred Maussner, 2010. "Firm Heterogeneity, Credit Constraints, and Endogenous Growth," Discussion Paper Series, Universitaet Augsburg, Institute for Economics 311, Universitaet Augsburg, Institute for Economics.
  3. A. Kerem Coşar & Nezih Guner & James Tybout, 2011. "Firm dynamics, job turnover, and wage distributions in an open economy," Working Papers, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales 2011-06, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  4. Jože P. Damijan & Črt Kostevc, 2011. "Firms' Pattern of Trade and Access to Finance," LICOS Discussion Papers, LICOS - Centre for Institutions and Economic Performance, KU Leuven 27811, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  5. Alejandro Riaño, 2011. "Exports, investment and firm-level sales volatility," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 147(4), pages 643-663, November.
  6. Mahmoud Nabi & Taoufik Rajhi, 2013. "Banking, contract enforcement and economic growth," International Review of Economics, Springer, Springer, vol. 60(1), pages 83-100, March.

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