Working Paper
Why doesn’t technology flow from rich to poor countries?
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.
Keywords: Cash flow; Economic development; Technology - Economic aspects; India; Mexico;
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2015-10-01
Number: 2012-040
Pages: 90 pages