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Why doesn’t technology flow from rich to poor countries?

  • Cole, Harold L.
  • Greenwood, Jeremy
  • Sánchez, Juan M.

What is the role of a country’s financial system in determining technology adoption? To examine this, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The terms of finance are dictated by an intermediary’s ability to monitor and control a firm’s cash flow, in conjunction with the structure of the technology that the firm adopts. It is not always profitable to finance promising technologies. A quantitative illustration is presented where financial frictions induce entrepreneurs in India and Mexico to adopt less-promising ventures than in the United States, despite lower input prices.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-040.

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Length: 90 pages
Date of creation: 2012
Date of revision: 01 Oct 2015
Handle: RePEc:fip:fedlwp:2012-040
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