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Asymmetric Information, Credit Rationing, and Economic Growth

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  • Shouyong Shi

Abstract

This paper shows that asymmetric information in capital goods development can enhance long-run economic growth. This growth-enhancing role occurs when new capital goods are highly productive and high-quality new capital goods are not much more expensive to develop than low-quality capital goods. Under these conditions, asymmetric information induces agents to take high-risk projects whose success creates faster evolution of knowledge and faster economic growth. The popular view that asymmetric information and its induced credit rationing reduce growth can be supported under complementary conditions.

Suggested Citation

  • Shouyong Shi, 1996. "Asymmetric Information, Credit Rationing, and Economic Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 665-687, August.
  • Handle: RePEc:cje:issued:v:29:y:1996:i:3:p:665-87
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    Cited by:

    1. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2000. "Credit Market Imperfections, Financial Activity and Economic Growth," Vanderbilt University Department of Economics Working Papers 0020, Vanderbilt University Department of Economics.
    2. Wai-Hong Ho & Yong Wang, 2005. "Public capital, asymmetric information, and economic growth," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 57-80, February.
    3. Plehn-Dujowich, Jose M., 2009. "Endogenous growth and adverse selection in entrepreneurship," Journal of Economic Dynamics and Control, Elsevier, vol. 33(7), pages 1419-1436, July.
    4. Ramón Tirado Jiménez, 2000. "Crecimiento con cambio tecnológico endógeno, bancos y dinero, El caso de una economía con firmas innovadoras," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 15(1), pages 91-116.

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