|
|||||
|
|
Credit market imperfection,lack of entrepreneurship and capital outflow from a developing economy |
|
| Authors: | Sugata Marjit Suryaprakash Mishra |
| Institution: | 1. Indian Institute of Foreign Trade, Calcutta, India
Centre for Training and Research in Public Finance and Policy (at CSSSC), Calcutta, India CES-Ifo, Munich, Germany GEP, Nottingham, UK This paper has benefitted from seminar presentations at and/or academic visits to CSSSC, Indian Institute of Management, Ahmedabad, IGIDR, Mumbai, Washington University, St. Louis, Australian National University, IMF, Universities of Kobe and Tokyo. I am indebted to Rajat Acharyya, Subhayu Bandopadhyay, Aninda Chakraborty, Marcel Thum, Heinrich Ursprung, Prasada Rao, Arye Hillman, Eden Eu, Lei Yang, Reza Oladi, and Hamid Beladi. The usual disclaimer applies.;2. National Law School of India University, Bengaluru, India |
| Abstract: | This paper explores the impact of credit market imperfection on lack of demand for capital, trade, and capital flows in an economy with wealth heterogeneity. In particular, we look at the implications of wealth heterogeneity. We show that the low return of capital and lower output of credit-intensive output in autarky may reflect lack of entrepreneurship and demand for credit due to wealth heterogeneity and eventually may lead to capital outflow from a capital-scarce country. This is a different way of echoing the sentiment of the well–known Lucas paradox, which suggests that capital might flow from the poor to the rich countries. We also show the possibility of trade and capital flow being complements and not substitutes, as is usual in standard trade models driven by factor abundance. |
| Keywords: | capital flows credit market imperfection credit rationing entrepreneurs |