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

Eric W. Bond, James Tybout, Hale Utar

Research output: Contribution to journalArticle

9 Scopus citations

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
Publication statusPublished - Aug 1 2015

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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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