Distinguishing Constraints on Financial Inclusion and Their Impact on GDP, TFP, and the Distribution of Income

42 Pages Posted: 7 Dec 2019 Last revised: 4 Feb 2020

See all articles by Era Dabla-Norris

Era Dabla-Norris

International Monetary Fund (IMF)

Yan Ji

Hong Kong University of Science & Technology (HKUST)

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: January 7, 2020

Abstract

A general equilibrium model featuring multiple realistic sources of financial frictions is developed to study how different constraints interact in equilibrium. We highlight, distinguish, and evaluate their differential impacts and rich interactions. The economic impact of financial inclusion policies in an economy depends not only on which constraint is alleviated, but also on the tightness of other constraints. Policy instruments should target the most binding constraint, which likely varies across countries. Moreover, there are important trade-offs between financial inclusion, GDP, and the distribution of income. The transitional dynamics also differ from those in steady states. Policy makers should consider both.

Keywords: Financial Frictions, Occupational Choice, Income Distribution, Welfare, Transitional Dynamics

JEL Classification: C54, E23, E44, E61, O11, O16, O57

Suggested Citation

Dabla-Norris, Era and Ji, Yan and Townsend, Robert M. and Unsal, D. Filiz, Distinguishing Constraints on Financial Inclusion and Their Impact on GDP, TFP, and the Distribution of Income (January 7, 2020). Journal of Monetary Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3483633 or http://dx.doi.org/10.2139/ssrn.3483633

Era Dabla-Norris

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Yan Ji (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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