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

88 Pages Posted: 20 Oct 2011 Last revised: 3 Mar 2016

Harold L. Cole

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

Jeremy Greenwood

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

Juan M. Sánchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Multiple version iconThere are 3 versions of this paper

Date Written: March 1, 2016

Abstract

What is the role of a country's financial system in determining technology adoption? To examine this, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The terms of finance are dictated by an intermediary's ability to monitor and control a firm's cash flow, in conjunction with the structure of the technology that the firm adopts. It is not always profitable to finance promising technologies. A quantitative illustration is presented where financial frictions induce entrepreneurs in India and Mexico to adopt less-promising ventures than in the United States, despite lower input prices.

Keywords: Costly cash-flow control; costly state verification; dynamic contract theory; economic development; establishment-size distributions; finance and development; financial intermediation; India, Mexico, and the United States; long- and short-term contracts; monitoring; productivity; retained earnings

JEL Classification: D92, E13, G24, O11, O16

Suggested Citation

Cole, Harold L. and Greenwood, Jeremy and Sánchez, Juan M., Why Doesn't Technology Flow from Rich to Poor Countries? (March 1, 2016). Available at SSRN: https://ssrn.com/abstract=1945981 or http://dx.doi.org/10.2139/ssrn.1945981

Harold L. Cole (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Jeremy Greenwood

University of Pennsylvania - Department of Economics ( email )

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HOME PAGE: http://jeremygreenwood.net

National Bureau of Economic Research (NBER)

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Juan M. Sanchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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