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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. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
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  4. Sylla, Richard, 2002. "Financial Systems And Economic Modernization," The Journal of Economic History, Cambridge University Press, vol. 62(02), pages 277-292, June.
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  8. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
  9. Saint-Paul, G., 1990. "Technological Choice, Financial Markets and Economic Development," DELTA Working Papers 90-30, DELTA (Ecole normale supérieure).
  10. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
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  12. 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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  14. Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
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