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

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  • Jose De Gregorio
  • Se-Jik Kim

Abstract

This paper addresses the growth, welfare, and distributional effects of credit markets. We construct a general equilibrium model where human capital is the engine of growth and individuals differ in their education abilities. We argue that the existence of credit markets encourages specialization, by which individuals choose during their youth to work or to receive formal education. This specialization unambiguously increases growth and welfare. The model also shows that in economies with high (low) average level of education abilities, the opening of credit markets induces a more disperse (equal) income distribution.

Suggested Citation

  • Jose De Gregorio & Se-Jik Kim, 1994. "Credit Markets with Differences in Abilities; Education, Distribution, and Growth," IMF Working Papers 94/47, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:94/47
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    Cited by:

    1. Litina, Anastasia & Palivos, Theodore, 2016. "Corruption, tax evasion and social values," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 164-177.
    2. Costas AZARIADIS & David DE LA CROIX, 2002. "Growth or equality ? Losers and gainers from financial reform," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002036, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    3. Simone Valente, 2005. "Tax Policy and Human Capital Formation with Public Investment in Education," Journal of Economics, Springer, vol. 86(3), pages 229-258, December.
    4. David DE LA CROIX & Michel LUBRANO, 2009. "The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 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.
    7. David Croix & Philippe Michel, 2007. "Education and growth with endogenous debt constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(3), pages 509-530, December.
    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.
    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.
    10. Alex Trew, 2006. "Finance and Growth: A Critical Survey," The Economic Record, The Economic Society of Australia, vol. 82(259), pages 481-490, December.
    11. Bernhard Eckwert & Itzhak Zilcha, 2017. "Student loans: When is risk sharing desirable?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(2), pages 217-231, June.
    12. Christian Ferreda & Matías Tapia, 2010. "Redistributive Taxation, Incentives, and the Intertemporal Evolution of Human Capital," Documentos de Trabajo 390, Instituto de Economia. Pontificia Universidad Católica de Chile..
    13. Das, Satya P., 2006. "Trade, skill acquisition and distribution," Journal of Development Economics, Elsevier, vol. 81(1), pages 118-141, October.
    14. 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.
    15. D. Fiaschi & R. Orsini, 1998. "Long Run Growth and Income Distribution in an Olg Model With Strategic Job-Seeking and Credit Rationing," Working Papers 331, Dipartimento Scienze Economiche, Universita' di Bologna.
    16. 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.
    17. José De Gregorio & Jong-Wha Lee, 1999. "Education and Income Distribution: New Evidence from Cross-country Data," Documentos de Trabajo 55, Centro de Economía Aplicada, Universidad de Chile.
    18. Garofalo, Giuseppe & Morganti, Patrizio, 2010. "Il finanziamento degli investimenti in R&S. Gli effetti sulla crescita e sulla struttura finanziaria," MPRA Paper 23551, University Library of Munich, Germany.
    19. 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.
    20. Nicola Amendola & Lorenzo Carbonari & Leo Ferraris, 2018. "Collateral and Development," CEIS Research Paper 424, Tor Vergata University, CEIS, revised 20 Feb 2018.
    21. 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.

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