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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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  1. James Tybout, 1999. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Development and Comp Systems 9906001, EconWPA, revised 10 Jun 1999.
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  4. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2009. "Financing development : the role of information costs," Working Paper 08-08, Federal Reserve Bank of Richmond.
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  7. Ana Fernandes & Christopher Phelan, 1999. "A recursive formulation for repeated agency with history dependence," Staff Report 259, Federal Reserve Bank of Minneapolis.
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  19. repec:oup:restud:v:79:y:2012:i:1:p:388-417 is not listed on IDEAS
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