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Finance, Technology and Inequality in Economic Development

Author

Listed:
  • Ryo Horii

    (Graduate School of Economics, Osaka University)

  • Ryoji Ohdoi

    (Graduate School of Economics, Osaka University)

  • Kazuhiro Yamamoto

    (Graduate School of Economics, Osaka University)

Abstract

This paper develops an overlapping generations model with technology choice and imperfect credit market, in order to investigate a possible source of underdevelopment. Consistent with empirical observations in the literature, the model shows that better financial institutions that provide stronger enforceability of contracts facilitate the development of financial markets, which in turn enables firms to switch to more capital intensive technologies, thereby promoting economic development. In the presence of credit rationing, however, this technological switch widens inequality. Therefore, risk-averse agents would not be willing to improve the financial institutions to the level at whic the technological switch occurs, resulting in a development trap. A remedy is to facilitate small firms fadoption of existing technology, rather than the newone.

Suggested Citation

  • Ryo Horii & Ryoji Ohdoi & Kazuhiro Yamamoto, 2005. "Finance, Technology and Inequality in Economic Development," Discussion Papers in Economics and Business 05-08, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:0508
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    Cited by:

    1. Radhika Lahiri & Shyama Ratnasiri, 2007. "Concerning Inequality, Technology Adoption, and Structural Change," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 13(4), pages 527-528, November.
    2. Tamir Agmon & Avi Messica, 2009. "Financial Foreign Direct Investment: The Role of Private Equity Investments in the Globalization of Firms from Emerging Markets," Management International Review, Springer, vol. 49(1), pages 11-26, February.
    3. Radhika Lahiri & Shyama Ratnasiri, 2007. "Concerning Technology Adoption and Inequality," School of Economics and Finance Discussion Papers and Working Papers Series 215, School of Economics and Finance, Queensland University of Technology.
    4. Kerstin Gerling, 2008. "The Real Consequences of Financial Market Integration when Countries Are Heterogeneous," Working Papers 141, Oesterreichische Nationalbank (Austrian Central Bank).

    More about this item

    Keywords

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    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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