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

FRB of St. Louis Working Paper No. 2012-040A

Posted: 18 Oct 2012

See all articles by Harold L. Cole

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: October 18, 2012

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.

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: E13, O11, O16

Suggested Citation

Cole, Harold L. and Greenwood, Jeremy and Sanchez, Juan M., Why Doesn't Technology Flow from Rich to Poor Countries? (October 18, 2012). FRB of St. Louis Working Paper No. 2012-040A. Available at SSRN: https://ssrn.com/abstract=2163783

Harold L. Cole

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 )

Ronald O. Perelman Center for Political Science
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215-898-1505 (Phone)

HOME PAGE: http://jeremygreenwood.net

National Bureau of Economic Research (NBER)

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Juan M. Sanchez (Contact Author)

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

411 Locust St
Saint Louis, MO 63011
United States

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