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Why Doesn't Technology Flow from Rich to Poor Countries?

Author

Abstract
What is the role of a country's financial system in determining technology adoption? To examine this, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The terms of finance are dictated by an intermediary's ability to monitor and control a firm's cash flow, in conjunction with the structure of the technology that the firm adopts. It is not always profitable to finance promising technologies. A quantitative illustration is presented where financial frictions induce entrepreneurs in India and Mexico to adopt less-promising ventures than in the United States, despite lower input prices. In Econometrica (July 2016), v. 84, n. 4: 1477-1521.

Suggested Citation

  • Harold L Cole & Jeremy Greenwood & Juan M Sanchez, 2014. "Why Doesn't Technology Flow from Rich to Poor Countries?," Economie d'Avant Garde Research Reports 25, Economie d'Avant Garde.
    • Handle: RePEc:eag:rereps:25
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    More about this item

    Keywords

    Costly cash-flow control; costly state verification; dynamic contract theory; economic development; establishment-size distributions; finance and development; financial intermediation; India; Mexico; and the United States; long- and short-term contract; monitoring; productivity; retained earnings; self-finance; technology adoption; ventures;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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