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CREDIT RATIONING, RISK AVERSION, AND INDUSTRIAL EVOLUTION IN DEVELOPING COUNTRIES
Author(s) -
Bond Eric W.,
Tybout James,
Utar Hale
Publication year - 2015
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12119
Subject(s) - counterfactual thinking , credit rationing , economics , sunk costs , developing country , financial intermediary , productivity , intermediation , panel data , monetary economics , welfare , precautionary savings , index (typography) , risk aversion (psychology) , microeconomics , market liquidity , interest rate , econometrics , financial economics , macroeconomics , expected utility hypothesis , market economy , philosophy , epistemology , world wide web , computer science , economic growth
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.