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Financial Infrastructure, Technological Shift, And Inequality In Economic Development

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

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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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 17 (2013)
Issue (Month): 03 (April)
Pages: 531-562

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Handle: RePEc:cup:macdyn:v:17:y:2013:i:03:p:531-562_00
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  1. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, vol. 73(1), pages 55-74, February.
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  9. 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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