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Finance, Technology and Inequality in Economic Development

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  • Ryo Horii

    (Osaka University)

  • Ryoji Ohdoi

    (Osaka University)

  • Kazuhiro Yamamoto

    (Osaka University)

Abstract

This paper presents an overlapping generations model with technology choice and credit market imperfections, in order to investigate a possible source of underdevelopment. The model shows that a better financial infrastructure that provides stronger enforcement of contracts facilitates the development of financial markets, which, in turn, enables firms to switch to more productive and capital-intensive technologies, thereby promoting economic development. In the presence of credit rationing, however, this technological switch widens inequality. Therefore, risk-averse agents would not be willing to improve the financial infrastructure to the level at which the technological switch occurs, resulting in a development trap. A remedy is to facilitate small firms' adoption of the currently used technology rather than the new one.

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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0504004.

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Length: 40 pages
Date of creation: 12 Apr 2005
Date of revision: 31 Jul 2005
Handle: RePEc:wpa:wuwpdc:0504004

Note: Type of Document - pdf; pages: 40
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Web page: http://128.118.178.162

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Keywords: Enforcement; Technological Switch; Income Distribution; Credit Rationing; Institutions.;

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Cited by:
  1. Radhika Lahiri & Shyama Ratnasiri, 2006. "Concerning Inequality, Technology Adoption, and Structural Change," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 207, School of Economics and Finance, Queensland University of Technology.
  2. Kerstin Gerling, 2008. "The Real Consequences of Financial Market Integration when Countries Are Heterogeneous," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 141, Oesterreichische Nationalbank (Austrian Central Bank).

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