Contracting Constraints, Credit Markets and Economic Development

58 Pages Posted: 25 Apr 2002

See all articles by Abhijit V. Banerjee

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2001

Abstract

This paper begins by summarizing the micro-evidence on credit markets from a large number of studies from all over the world, with the goal of identifying a number of stylized facts. We argue that, in particular, the evidence strongly suggests that for poor people in developing countries, imperfections in the credit market are quantitatively very important. We then build a simple model that explains the observed patterns, based on the idea that monitoring and screening borrowers have both fixed and variable costs. We go on to build a simple dynamic model that allows us to understand what the observations about the credit market imply for the evolution of the wealth distribution.

Keywords: Credit Markets; Distribution; Growth

JEL Classification: O12, D82, D31

Suggested Citation

Banerjee, Abhijit V., Contracting Constraints, Credit Markets and Economic Development (September 2001). MIT Dept. of Economics Working Paper No. 02-17. Available at SSRN: https://ssrn.com/abstract=306990 or http://dx.doi.org/10.2139/ssrn.306990

Abhijit V. Banerjee (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-252D
Cambridge, MA 02142
United States
617-253-8855 (Phone)
617-253-6915 (Fax)

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