Credit rationing, risk aversion, and industrial evolution in developing countries

Eric W. Bond, James Tybout, Hale Utar

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

Relative to their counterparts in high-income regions, entrepreneurs in developing countries face less efficient financial markets, more volatile macroeconomic conditions, and higher entry costs. This article develops a dynamic empirical model that links these features of the business environment to cross-firm productivity distributions, entrepreneurs' welfare, and patterns of industrial evolution. Fit to panel data on Colombian apparel producers, the model yields estimates of a credit market imperfection index, the sunk costs of creating a new business, and various technology parameters. Model-based counterfactual experiments suggest that improved intermediation could dramatically increase the return on assets for entrepreneurial households with modest wealth.

Original languageEnglish (US)
Pages (from-to)695-722
Number of pages28
JournalInternational Economic Review
Volume56
Issue number3
DOIs
StatePublished - Aug 1 2015

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Developing countries
Entrepreneurs
Risk aversion
Credit rationing
Return on assets
Firm productivity
Financial markets
New business
Panel data
Wealth
Macroeconomic conditions
Empirical model
Entry costs
Apparel
Intermediation
Experiment
Business environment
Household
Credit market imperfections
Income

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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Credit rationing, risk aversion, and industrial evolution in developing countries. / Bond, Eric W.; Tybout, James; Utar, Hale.

In: International Economic Review, Vol. 56, No. 3, 01.08.2015, p. 695-722.

Research output: Contribution to journalArticle

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