Bridging the Gaps: Credits, Adoption, and Inequality

Abstract

We examine here the role of credits on technology adoption and inequality from the perspective of developing countries. Utilizing a model of exogenous growth, with heterogeneous labor and technical progress embodied in physical capital, we find that credits can contribute to a faster adoption and to reducing income inequality. Thus, a virtuous cycle of credits, a shorter technological gap, less inequality, and economic growth is feasible to be created when there is full liquidity in the market. When credits are constrained, the cycle loses virtuosity, where the economy can lose up to two points in growth due to credit constraints.

Does Monetary Policy Affect Income Inequality in the Euro Area?

“…This reasoning is in line with the conclusions ofFarias et al (2019) that less inequality and higher output growth can be achieved when there is full liquidity in the market, due to lower lending rates.…”

Does Monetary Policy Affect Income Inequality in the Euro Area?

“…This benefits high-income households 5. This reasoning is in line with the conclusions of Farias, Scavia, and Fuentes (2019) that less inequality and higher output growth can be achieved when there is full liquidity in the market due to lower lending rates.…”

Finance‐inequality Nexus: The Long and the Short of It

“…This mechanism can, of course, be placed in intertemporal context. For example, assuming firms are credit constrained in the short run, the Farias, Scavia, and Fuentes (2019) result would support the view that credit expansion benefits the poor (as long as technology is skill‐neutral) and reduces income inequality. In the long run, with technology likely to be more skill‐biased, credit expansion may raise the income gap between skilled and unskilled workers.…”

“…In a recent paper, Farias, Scavia, and Fuentes (2019) theoretically 11 investigate the relationship between credit availability, adoption of new technologies and inequality. In particular, in a full liquidity (no credit constraints) state, investment can lead to faster adoption of technology and, if the technology is “skill‐neutral,” a reduction in income inequality.…”

“…The finance‐inequality nexus has been the subject of extensive discussions for a long time (e.g., Beck, Demirgüç‐Kunt, and Levine 2007; de Haan and Sturm 2017; Fischer, Huerta, and Valenzuela 2019; Greenwood and Jovanovic 1990; Kuznets 1955). Moreover, the apparent upward movement in income inequality over the last few decades, especially in developed countries, has increased academic interest in inequality and its potential determinants (Farias, Scavia, and Fuentes 2019; Piketty 2005, 2014; Roser and Cuaresma 2016; Tridico 2017; Xie and Zhou 2014). A possible factor is financial development; however, both theoretical and empirical studies in the extant literature offer mixed views with regard to its impact on inequality.…”