Hostname: page-component-586b7cd67f-g8jcs Total loading time: 0 Render date: 2024-11-27T19:54:03.963Z Has data issue: false hasContentIssue false
  • English
  • Français

FINANCIAL INFRASTRUCTURE, TECHNOLOGICAL SHIFT, AND INEQUALITY IN ECONOMIC DEVELOPMENT

Published online by Cambridge University Press:  30 January 2012

Ryo Horii ,
Ryoji Ohdoi  and
Kazuhiro Yamamoto
Ryo Horii
Affiliation:
Tohoku University
Ryoji Ohdoi*
Affiliation:
Osaka City University
Kazuhiro Yamamoto
Affiliation:
Osaka University
*
Address correspondence to: Ryoji Ohdoi, Graduate School of Economics, Osaka City University, 3-3-138, Sugimoto, Sumiyoshi-ku, Osaka 558-8585, Japan; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper presents an overlapping generations model with technology choice and imperfect financial markets, and examines the evolution of the income distribution in economic development. The model shows that improvements in financial infrastructure facilitate economic development both by raising the aggregate capital–labor ratio and by causing a technological shift to more capital-intensive technologies. Although a higher capital–labor ratio under a given technology reduces inequality, a technological shift can lead to a concentration of economic rents among a smaller number of agents. We derive the condition under which an improvement in financial infrastructure actually decreases the average utility of agents.

Keywords

Technological ShiftIncome DistributionRentsEnforcementCredit Rationing
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 3 , April 2013 , pp. 531 - 562
Copyright
Copyright © Cambridge University Press 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Acemoglu, D. (2002). Directed technical change. Review of Economic Studies 69 (4), 781–809.CrossRefGoogle Scholar
Aghion, P. and Bolton, P. (1997). A trickle-down theory of growth and development with debt overhang. Review of Economic Studies, 62, 151–172.CrossRefGoogle Scholar
Banerjee, A.V. and Newman, A.F. (1998). Information, the dual economy, and development. Review of Economic Studies, 65, 631–653.CrossRefGoogle Scholar
Barro, R. (2000). Inequality and growth in a panel of countries. Journal of Economic Growth 5, 5–32.CrossRefGoogle Scholar
Bencivenga, V.R., Smith, B.D., and Starr, R.M. (1995). Transactions costs, technological choice, and endogenous growth. Journal of Economic Theory 67, 153–177.CrossRefGoogle Scholar
Castro, R., Clementi, G.L., and MacDonald, G. (2009). Legal institutions, sectoral heterogeneity, and economic development. Review of Economic Studies 76, 529–561.CrossRefGoogle Scholar
Christopoulos, D.K. and Tsionas, E.G. (2004). Financial development and economic growth: Evidence from panel unit root and cointegration tests. Journal of Development Economics 73, 55–74.CrossRefGoogle Scholar
Dickson, P. (1967). The Financial Revolution in England. New York: St. Martin's Press.Google Scholar
Drazen, A. (2000). Political Economy in Macroeconomics. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Erosa, A. and Hidalgo-Cabrillana, A. (2008). On finance as a theory of TFP, cross-industry productivity differences, and economic rents. International Economic Review 49, 437–473.CrossRefGoogle Scholar
Foellmi, R. and Oechslin, M. (2007). Who gains from non-collusive corruption? Journal of Development Economics 82, 95–119.CrossRefGoogle Scholar
Foellmi, R. and Oechslin, M. (2010). Market imperfections, wealth inequality, and the distribution of trade gains. Journal of International Economics 81, 15–25.CrossRefGoogle Scholar
Galor, O. and Moav, O. (2004). From physical to human capital accumulation: Inequality and the process of development. Review of Economic Studies 71, 1001–1026.CrossRefGoogle Scholar
Galor, O. and Moav, O. (2006). Das human-Kapital: A theory of the demise of the class structure. Review of Economic Studies 73, 85–117.CrossRefGoogle Scholar
Galor, O., Moav, O., and Vollrath, D. (2009). Inequality in landownership, the emergence of human-capital promoting institutions, and the great divergence. Review of Economic Studies 76, 143–179.CrossRefGoogle ScholarPubMed
Galor, O. and Zeira, J. (1993). Income distribution and macro economics. Review of Economic Studies 60, 35–52.CrossRefGoogle Scholar
Greenwood, J. and Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of Political Economy 98, 1076–1107.CrossRefGoogle Scholar
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R.W. (1997). Legal determinants and external finance. Journal of Finance 52 (3), 1131–1150.CrossRefGoogle Scholar
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R.W. (1998). Law and finance. Journal of Political Economy 106 (6), 1113–1155.CrossRefGoogle Scholar
Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature 35, 688–726.Google Scholar
Levine, R. (2005). Finance and growth: Theory, evidence, and mechanisms. In Aghion, P. and Durlauf, S.N. (eds.), Handbook of Economic Growth, vol. 1, pp. 865–934. Amsterdam: Elsevier.Google Scholar
Levine, R., Loayza, N., and Beck, T., (2000). “Financial Intermediation and Growth: Causality and Causes.” Journal of Monetary Economics, 46, 31–77.CrossRefGoogle Scholar
Li, H., Squire, L., and Zou, H. (1998). Explaining international and intertemporal variations in income inequality. Economic Journal 108 (127), 26–43.CrossRefGoogle Scholar
Lindert, P.H. (2000). Three centuries of inequality in Britain and America. In Atkinson, B. and Bourguignon, F. (eds.), Handbook of Income Distribution, vol. 1, pp. 167–216. Amsterdam: Elsevier.CrossRefGoogle Scholar
Matsuyama, K. (2000). Endogenous inequality. Review of economic studies 67, 743–759.CrossRefGoogle Scholar
Mokyr, J. (1990). The Lever of Riches: Technological Creativity and Economic Progress. New York: Oxford University Press.Google Scholar
Morrison, C. (2000). Historical perspective on income distribution: The case of Europe. In Atkinson, B. and Bourguignon, F. (eds.), Handbook of Income Distribution, vol. 1, pp. 217–260. Amsterdam: Elsevier.CrossRefGoogle Scholar
Okazaki, T. (1996). Relationship between government and firm in the post WWII economic recovery: Resolving the coordination failure by coordination in industrial rationalization. In Aoki, M., Okuno-Fujiwara, M., and Kim, H. (eds.), The Role of Government in East Asian Development: Comparative Institutional Analysis. Oxford, UK: Oxford University Press.Google Scholar
Rajan, R.G. and Zingales, L. (2003). Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity. Princeton, NJ: Princeton University Press.Google Scholar
Saint-Paul, G. (1992). Technological choice, financial markets, and economic development. European Economic Review 36 (4), 763–781.CrossRefGoogle Scholar
Stokey, N. and Lucas, R., with Prescott, E. (1989). Recursive Methods in Economic Dynamics. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
Sylla, R. (2002). Financial systems and economic modernization. Journal of Economic History 62 (2), 277–292.CrossRefGoogle Scholar
Wurgler, J. (2000). Financial markets and the allocation of capital. Journal of Financial Economics 58, 187–214.CrossRefGoogle Scholar