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Credit Markets with Differences in Abilities: Education, Distribution, and Growth

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  • José De Gregorio

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  • Se-Jik Kim

Abstract

An endogenous growth model is presented in which the existence of credit markets affects time allocation of individuals who differ in education abilities. Credit markets allow the more able to specialize in studying and the less able in working. This specialization can increase growth and welfare by accelerating an economy's human capital accumulation. This paper also shows that in economies with high (low) average level of education abilities, the opening of credit markets will induce a more disperse (equal) income distribution. The role of intergenerational transfers within a family in overcoming the absence of credit markets is also discussed. Finally, we discuss the growth effect of credit markets in the case of imperfect credit markets, where people can save using storage but cannot borrow.

Suggested Citation

  • José De Gregorio & Se-Jik Kim, 1998. "Credit Markets with Differences in Abilities: Education, Distribution, and Growth," Documentos de Trabajo 42, Centro de Economía Aplicada, Universidad de Chile.
  • Handle: RePEc:edj:ceauch:42
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    4. David DE LA CROIX & Michel LUBRANO, 2009. "The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model," LIDAM Discussion Papers IRES 2009011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Theodore Palivos & Dimitrios Varvarigos, 2013. "Intergenerational Complementarities in Education, Endogenous Public Policy, and the Relation Between Growth and Volatility," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(2), pages 249-272, April.
    6. Andrew Hodge, 2016. "The Design of Fiscal Reform Packages; Insights from a Theoretical Endogenous Growth Model," IMF Working Papers 16/146, International Monetary Fund.
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    8. Ryo Horii & Akiomi Kitagawa & Koichi Futagami, 2008. "Availability Of Higher Education And Long‐Term Economic Growth," The Japanese Economic Review, Japanese Economic Association, vol. 59(2), pages 156-177, June.
    9. Theodore Palivos & Dimitrios Varvarigos, 2010. "Education and growth: A simple model with complicated dynamics," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(4), pages 367-384, December.
    10. Athanasios Lapatinas & Anastasia Litina & Eftichios Sophocles Sartzetakis, 2019. "Environmental projects in the presence of corruption," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(1), pages 103-144, February.
    11. Alex Trew, 2006. "Finance and Growth: A Critical Survey," The Economic Record, The Economic Society of Australia, vol. 82(259), pages 481-490, December.
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    15. Das, Satya P., 2006. "Trade, skill acquisition and distribution," Journal of Development Economics, Elsevier, vol. 81(1), pages 118-141, October.
    16. Conceição Pereira, 2003. "The Effects of Households’ and Firms’ Borrowing Constraints on Economic Growth," GEMF Working Papers 2003-04, GEMF, Faculty of Economics, University of Coimbra.
    17. Erasmo Papagni, 2008. "The Long-run Effects of Household Liquidity Constraints and Taxation on Fertility, Education, Saving, and Growth," Discussion Papers 11_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    18. Rodolfo Cermeño & María Roa García & Claudio González-Vega, 2012. "Financial Development and Volatility of Growth: Time Series Evidence for Mexico and USA," DEGIT Conference Papers c017_035, DEGIT, Dynamics, Economic Growth, and International Trade.
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    21. Alberto Bucci & Simone Marsiglio, 2019. "Financial development and economic growth: long‐run equilibrium and transitional dynamics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(3), pages 331-359, July.
    22. Rodolfo Cermeño Bazán & María Roa García & Claudio González Vega, 2012. "Financial Development and Growth Volatility: Time Series Evidence for Mexico and The United States," Working papers DTE 544, CIDE, División de Economía.
    23. Bucci, Alberto & La Torre, Davide & Liuzzi, Danilo & Marsiglio, Simone, 2019. "Financial contagion and economic development: An epidemiological approach," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 211-228.

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