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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. Peter H. Lindert, . "Three Centuries Of Inequality In Britain And America," Department of Economics 97-09, California Davis - Department of Economics.
  2. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
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  8. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
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  12. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  13. 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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