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Technological lock-in developing countries: The role of external financing

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  • Yajima, Giuliano Toshiro
  • Nalin, Lorenzo

Abstract

Liabilities denominated in foreign currency have established a permanent role in emerging market firms’ balance sheet, which implies that changes in both global liquidity conditions and in the value of the currency may have a long- lasting effect for them. In order to consider the financial conditions that may encourage (discourage) structural change in a small, open economy, we adopt the framework put forward by the “Monetary theory of distribution” (MTD). More specifically, we follow the formulation adopted by Dvoskin and Feldman (2019), whereby the financial system is intended as a basic sector that promotes innovation (Schumpeter, 1911). In accordance to this, financial conditions are binding only for the innovative entrepreneurs, whose methods of production are not dominant and hence they need to borrow from banks to kick- start their production. Through this device, our model offers an explanation to the technological lock-in experienced by a small, open economy which takes international prices as given.

Suggested Citation

  • Yajima, Giuliano Toshiro & Nalin, Lorenzo, 2024. "Technological lock-in developing countries: The role of external financing," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 494-502.
    • Handle: RePEc:eee:streco:v:70:y:2024:i:c:p:494-502
    DOI: 10.1016/j.strueco.2024.05.014
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    More about this item

    Keywords

    Foreign exchange policy; Currency mismatches; Structural change;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics

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