Credit Imperfections, Inequality and Economic Growth

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Credit Imperfections, Inequality and Economic Growth

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1995-11

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Center for Economic Research, Department of Economics, University of Minnesota

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Working Paper

Abstract

This paper presents a dynamic general equilibrium model to investigate the interaction of financial markets with economic growth, change of industry structure and the evolution of wealth across households along the development process. I find that in the early stages of development the economy experiences "extensive growth," in which the growth rates are increasing and the fraction of entrepreneurs is positively correlated to the level of aggregate output. The engine of growth in this stage comes from the reallocation of resources from low to high productivity sectors. In the middle and mature stages of development the economy experiences "intensive growth," that is, the fraction of entrepreneurs is negatively correlated with the level of output and the source of growth in these stages is the higher average productivity achieved by the competition among entrepreneurs. As a result, the growth rate could be increasing in the middle stage and then displays a decreasing pattern during the mature stage.

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Discussion Paper
286

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Previously Published Citation

Carranza, L., (1995), "Credit Imperfections, Inequality and Economic Growth", Discussion Paper No. 286, Center for Economic Research, Department of Economics, University of Minnesota.

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Carranza, Luis. (1995). Credit Imperfections, Inequality and Economic Growth. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/55747.

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