Credit Markets with Differences in Abilities: Education, Distribution, and Growth

36 Pages Posted: 15 Feb 2006

See all articles by Jose de Gregorio

Jose de Gregorio

Central Bank of Chile; Universidad de Chile; National Bureau of Economic Research (NBER)

Se-Jik Kim

International Monetary Fund (IMF)

Date Written: April 1994

Abstract

This paper addresses the growth, welfare, and distributional effects of credit markets. We construct a general equilibrium model where human capital is the engine of growth and individuals differ in their education abilities. We argue that the existence of credit markets encourages specialization, by which individuals choose during their youth to work or to receive formal education. This specialization unambiguously increases growth and welfare. The model also shows that in economies with high (low) average level of education abilities, the opening of credit markets induces a more disperse (equal) income distribution.

JEL Classification: O15, O16, O40

Suggested Citation

de Gregorio, Jose and Kim, Se-Jik, Credit Markets with Differences in Abilities: Education, Distribution, and Growth (April 1994). IMF Working Paper No. 94/47, Available at SSRN: https://ssrn.com/abstract=883509

Jose De Gregorio (Contact Author)

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Universidad de Chile ( email )

Ministry of Finance Teatinos l20 - Piso l2
Santiago
Chile

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Se-Jik Kim

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States