Econometrica Vol. 84 No. 4 2016
Why Doesn't Technology Flow From Rich to Poor Countries?
open access
Abstract
What is the role of a country's financial system in determining technology adoption? To examine this, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The terms of finance are dictated by an intermediary's ability to monitor and control a firm's cash flow, in conjunction with the structure of the technology that the firm adopts. It is not always profitable to finance promising technologies. A quantitative illustration is presented where financial frictions induce entrepreneurs in India and Mexico to adopt less‐promising ventures than in the United States, despite lower input prices.
- DOI
- 10.3982/ecta11150
- Volume
- 84
- Issue
- 4
- Pages
- 1477-1521
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref