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Credit Rationing, Risk Aversion and Industrial Evolution in Developing Countries

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Listed author(s):
  • Eric Bond
  • James R. Tybout
  • Hâle Utar

Abstract

Relative to their counterparts in high-income regions, entrepreneurs in developing countries face less efficient financial markets, more volatile macroeconomic conditions, and higher entry costs. This paper develops a dynamic empirical model that links these features of the business environment to cross-firm productivity distributions, entrepreneurs' welfare, and patterns of industrial evolution. Applied to panel data on Colombian apparel producers, the model yields econometric estimates of a credit market imperfection index, the sunk costs of creating a new business, and a risk aversion index (inter alia). Model-based counterfactual experiments suggest that improved intermediation could dramatically increase the return on assets for entrepreneurial households with modest wealth, and that the gains are particularly large when the macro environment is relatively volatile.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14116.

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Date of creation: Jun 2008
Publication status: published as Eric W. Bond & James Tybout & Hale Utar, 2015. "Credit Rationing, Risk Aversion, And Industrial Evolution In Developing Countries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 695-722, 08.
Handle: RePEc:nbr:nberwo:14116
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Find related papers by JEL classification:
  • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
  • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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Cited by:

  1. Jürgen Antony & Torben Klarl & Alfred Maußner, 2012. "Firm heterogeneity, credit constraints, and endogenous growth," Journal of Economics, Springer, vol. 105(3), pages 199-224, April.
  2. Migheli, Matteo, 2016. "Land Ownership, Access to Informal Credit and Its Cost in Rural Vietnam," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201619, University of Turin.
  3. A. Kerem Co?ar & Nezih Guner & James Tybout, 2016. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," American Economic Review, American Economic Association, vol. 106(3), pages 625-663, March.
  4. Caglayan, Mustafa & Demir, Firat, 2014. "Firm Productivity, Exchange Rate Movements, Sources of Finance, and Export Orientation," World Development, Elsevier, vol. 54(C), pages 204-219.
  5. Mahmoud Nabi & Taoufik Rajhi, 2013. "Banking, contract enforcement and economic growth," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 60(1), pages 83-100, March.
  6. Nabi, Mahmoud Sami & Suliman, Mohamed Osman, 2011. "Credit rationing, interest rates and capital accumulation," Economic Modelling, Elsevier, vol. 28(6), pages 2719-2729.
  7. Alejandro Riaño, 2011. "Exports, investment and firm-level sales volatility," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(4), pages 643-663, November.
  8. Jože Damijan & Črt Kostevc & Sašo Polanec, 2015. "Access to finance, exporting and a non-monotonic firm expansion," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(1), pages 131-155, February.
  9. Joze P. Damijan & Crt Kostevc, 2011. "Firms’ Patterns of Trade and Access to Finance," Chapters,in: Post-Crisis Growth and Integration in Europe, chapter 19 Edward Elgar Publishing.
  10. Nabi, Mahmoud Sami, 2015. "Equity-financing, income inequality and capital accumulation," Economic Modelling, Elsevier, vol. 46(C), pages 322-333.

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