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

  • José De Gregorio


  • Se-Jik Kim

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.

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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 42.

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Date of creation: 1998
Date of revision:
Handle: RePEc:edj:ceauch:42
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