Credit Markets and Stagnation in an Endogenous Growth Model
4 Pages Posted: 15 Feb 2006
Date Written: September 1993
Abstract
This paper studies the effects that the inability of individuals to borrow against future income has on economic growth. The model assumes that human capital, which is accumulated through education, is the only factor of production. It is shown that liquidity constraints reduce growth. Further, in the presence of externalities that may induce two equilibria, it is shown that liquidity constraints not only reduce the rate of growth in the high-growth equilibrium, but can also make the low-growth equilibrium more likely to occur.
JEL Classification: E21, O16, O41
Suggested Citation: Suggested Citation
de Gregorio, Jose, Credit Markets and Stagnation in an Endogenous Growth Model (September 1993). IMF Working Paper No. 93/72, Available at SSRN: https://ssrn.com/abstract=883787
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