Asymmetric information, credit rationing, and economic growth

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Abstract

This paper shows that asymmetric information in capital goods development can enhance long-run economic growth. This growth-enhancing role occurs when new capital goods are highly productive and high-quality new capital goods are not much more expensive to develop than low-quality capital goods. Under these conditions, asymmetric information induces agents to take high-risk projects whose success creates faster evolution of knowledge and faster economic growth. The popular view that asymmetric information and its induced credit rationing reduce growth can be supported under complementary conditions.

Original languageEnglish (US)
Pages (from-to)665-687
Number of pages23
JournalCanadian Journal of Economics
Volume29
Issue number3
DOIs
StatePublished - Jan 1 1996

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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