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Why doesn’t technology flow from rich to poor countries?
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.
Cite this item
Harold L. Cole & Jeremy Greenwood & Juan M. Sánchez, Why doesn’t technology flow from rich to poor countries?, Federal Reserve Bank of St. Louis, Working Papers 2012-040, 2012, revised 01 Oct 2015.
Keywords: Cash flow; Economic development; Technology - Economic aspects; India; Mexico
This item with handle RePEc:fip:fedlwp:2012-040
is also listed on EconPapers
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