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Credit Rationing, Risk Aversion and Industrial Evolution in Developing Countries

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  • James Tybout

    (Pennsylvania State University)

  • Hale Utar

    (University of Colorado at Boulder)

  • Eric Bond

    (Vanderbilt University)

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.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 351.

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Date of creation: 2009
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Handle: RePEc:red:sed009:351

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Citations

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Cited by:
  1. Alejandro Riaño, 2011. "Exports, Investment and Firm-Level Sales Volatility," CESifo Working Paper Series 3319, CESifo Group Munich.
  2. Cosar, A. Kerem & Guner, Nezih & Tybout, James, 2013. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," IZA Discussion Papers 7718, Institute for the Study of Labor (IZA).
  3. Jürgen Antony & Torben Klarl & Alfred Maußner, 2010. "Firm Heterogeneity, Credit Constraints, and Endogenous Growth," DEGIT Conference Papers c015_045, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Mahmoud Nabi & Taoufik Rajhi, 2013. "Banking, contract enforcement and economic growth," International Review of Economics, Springer, vol. 60(1), pages 83-100, March.
  5. Caglayan, Mustafa & Demir, Firat, 2014. "Firm Productivity, Exchange Rate Movements, Sources of Finance, and Export Orientation," World Development, Elsevier, vol. 54(C), pages 204-219.

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