Credit Rationing, Risk Aversion, and Industrial Evolution in Developing Countries

28 Pages Posted: 31 Jul 2015

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: August 2015

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.

Suggested Citation

Bond, Eric Wirths and Tybout, James R. and Utar, Hale, Credit Rationing, Risk Aversion, and Industrial Evolution in Developing Countries (August 2015). International Economic Review, Vol. 56, Issue 3, pp. 695-722, 2015, Available at SSRN: https://ssrn.com/abstract=2638124 or http://dx.doi.org/10.1111/iere.12119

Eric Wirths Bond (Contact Author)

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

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James R. Tybout

Pennsylvania State University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Hale Utar

Grinnell College ( email )

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

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