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Financial infrastructure, technological shift, and inequality in economic development

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  • Ryo, Horii
  • Kazuhiro, Yamamoto
  • Ryoji, Ohdoi

Abstract

This paper presents an overlapping generations model with technology choice and imperfect financial markets, and examines the evolution of income distribution in economic development. The model shows that improvements in financial infrastructure facilitate economic development both by raising the aggregate capital-labor ratio and by causing a technological shift to more capital-intensive technologies. While a higher capital-labor ratio under a given technology reduces inequality, a technological shift can lead to a concentration of the economic rents among a smaller number of agents. We derive the condition under which an improvement in financial infrastructure actually decreases the average utility of agents.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7919.

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Date of creation: 22 Mar 2008
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Handle: RePEc:pra:mprapa:7919

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Keywords: Technological Shift; Income Distribution; Rents; Enforcement; Credit Rationing;

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  1. Andres Erosa & Ana Hidalgo, 2007. "On Finance as a Theory of TFP, Cross-Industry Productivity Differences, and Economic Rents," Working Papers tecipa-285, University of Toronto, Department of Economics.
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