Why Doesn't Technology Flow from Rich to Poor Countries?

Abstract:     
What determines the technology that a country adopts? While there could be many factors, the efficiency of the country's financial system may play a significant role. To address this question, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The ability of an intermediary to monitor and control the cash flows of a firm plays an important role in a firm's decision to adopt a technology. Can such a theory help to explain the differences in total factor productivity and establishment-size distributions across India, Mexico, and the U.S.? Applied analysis suggests that answer is yes.

This paper was previously titled "Underwriting Ventures: Trust but Verify."

Number of Pages in PDF File: 64

Keywords: Costly cash-flow control, costly state verification, dynamic contract theory, economic development; establishment-size distributions, financial intermediation, India, Mexico and the U.S., monitoring, productivity, technology adoption, underwriting, ventures

JEL Classification: D92, G24, O11

working papers series