Credit Rationing, Risk Aversion and Industrial Evolution in Developing Countries

53 Pages Posted: 22 Jun 2008 Last revised: 27 Jan 2022

See all articles by Eric W. Bond

Eric W. Bond

Vanderbilt University - College of Arts and Science - Department of Economics

James Tybout

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Hale Utar

Grinnell College

Multiple version iconThere are 2 versions of this paper

Date Written: June 2008

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 paper 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. Applied to panel data on Colombian apparel producers, the model yields econometric estimates of a credit market imperfection index, the sunk costs of creating a new business, and a risk aversion index (inter alia). Model-based counterfactual experiments suggest that improved intermediation could dramatically increase the return on assets for entrepreneurial households with modest wealth, and that the gains are particularly large when the macro environment is relatively volatile.

Suggested Citation

Bond, Eric Wirths and Tybout, James R. and Utar, Hale, Credit Rationing, Risk Aversion and Industrial Evolution in Developing Countries (June 2008). NBER Working Paper No. w14116, Available at SSRN: https://ssrn.com/abstract=1149362

Eric Wirths Bond

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-322-3237 (Phone)
615-343-8495 (Fax)

James R. Tybout (Contact Author)

Pennsylvania State University - Department of Economics ( email )

517 Kern Graduate Building
University Park, PA 16802-3306
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hale Utar

Grinnell College ( email )

1210 Park Street
HSSC 2342
Grinnell, IA 50112
United States
+1 641 2699225 (Phone)

HOME PAGE: http://www.grinnell.edu/user/utarhale

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
35
Abstract Views
847
PlumX Metrics