IDEAS home Printed from https://ideas.repec.org/p/zur/iewwpx/265.html
   My bibliography  Save this paper

Equity and Efficiency under Imperfect Credit Markets

Author

Listed:
  • Reto Foellmi
  • Manuel Oechslin

Abstract

Recent macroeconomic research discusses credit market imperfections as a key channel through which inequality retards growth. Limited borrowing prevents the less affluent individuals from investing the efficient amount, and the inefficiencies are considered to become stronger as inequality rises. This paper, though, argues that higher inequality may actually boost aggregate output even with convex technologies and limited borrowing. Less equality in the middle or at the top end of the distribution is associated with a lower borrowing rate and hence better access to credit for the poor. We find, however, that rising relative poverty is unambiguously bad for economic performance. Hence, we suggest that future empirical work on the inequality-growth nexus should use more specific measures of inequality rather than measures of �overall� inequality such as the Gini index.

Suggested Citation

  • Reto Foellmi & Manuel Oechslin, 2006. "Equity and Efficiency under Imperfect Credit Markets," IEW - Working Papers 265, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:265
    as

    Download full text from publisher

    File URL: https://www.zora.uzh.ch/id/eprint/52222/1/iewwp265.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sarah Voitchovsky, 2005. "Does the Profile of Income Inequality Matter for Economic Growth?," Journal of Economic Growth, Springer, vol. 10(3), pages 273-296, September.
    2. Abhijit V. Banerjee & Andrew F. Newman, 1998. "Information, the Dual Economy, and Development," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(4), pages 631-653.
    3. Thomas Piketty, 1992. "Imperfect Capital Markets and Persistence of Initial Wealth Inequalities," STICERD - Theoretical Economics Paper Series 255, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    4. Kiminori Matsuyama, 2000. "Endogenous Inequality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 743-759.
    5. Ben S. Bernanke & Julio J. Rotemberg (ed.), 1996. "NBER Macroeconomics Annual 1996," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522225, April.
    6. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 151-172.
    7. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92, National Bureau of Economic Research, Inc.
    8. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    9. Thomas Piketty, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 173-189.
    10. repec:cep:stitep:/1992/255 is not listed on IDEAS
    11. Banerjee, Abhijit V & Duflo, Esther, 2003. "Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, vol. 8(3), pages 267-299, September.
    12. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Foellmi, Reto & Oechslin, Manuel, 2008. "Why progressive redistribution can hurt the poor," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 738-747, April.
    2. Bourguignon, Francois, 2005. "The Effect of Economic Growth on Social Structures," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 27, pages 1701-1747, Elsevier.
    3. Martin Ravallion, 2012. "Why Don't We See Poverty Convergence?," American Economic Review, American Economic Association, vol. 102(1), pages 504-523, February.
    4. Amparo Castelló-Climent, 2004. "A Reassessment Of The Relationship Between Inequality And Growth: What Human Capital Inequality Data Say?," Working Papers. Serie EC 2004-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    5. Martin Ravallion, 2013. "The Idea of Antipoverty Policy," NBER Working Papers 19210, National Bureau of Economic Research, Inc.
    6. Adnen Ben Nasr & Mehmet Balcilar & Rangan Gupta & Seyi Saint Akadiri, 2018. "Asymmetric Effects of Inequality on Per Capita Real GDP of the United States," Working Papers 201820, University of Pretoria, Department of Economics.
    7. Ademola Obafemi Young, 2019. "Growth Impacts of Income Inequality: Empirical Evidence From Nigeria," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 226-262, December.
    8. Madsen, Jakob B. & Islam, Md. Rabiul & Doucouliagos, Hristos, 2018. "Inequality, financial development and economic growth in the OECD, 1870–2011," European Economic Review, Elsevier, vol. 101(C), pages 605-624.
    9. Marrero, Gustavo A. & Rodríguez, Juan G., 2013. "Inequality of opportunity and growth," Journal of Development Economics, Elsevier, vol. 104(C), pages 107-122.
    10. Marta Simões & João Andrade & Adelaide Duarte, 2013. "A regional perspective on inequality and growth in Portugal using panel cointegration analysis," International Economics and Economic Policy, Springer, vol. 10(3), pages 427-451, September.
    11. Bozhechkova, Aleksandra & Vashchelyuk, Natalia & Nazarov, Pavel & Perevyshin, Yuri & Tumanova, Elena & Shagas, Natalia, "undated". "Modeling the Dynamic of Economic Potential," Published Papers nvg143, Russian Presidential Academy of National Economy and Public Administration.
    12. Ryo Horii & Ryoji Ohdoi & Kazuhiro Yamamoto, 2005. "Finance, Technology and Inequality in Economic Development," Discussion Papers in Economics and Business 05-08-Rev, Osaka University, Graduate School of Economics, revised Aug 2005.
    13. Thomas Leoni & Wolfgang Pollan, 2003. "The Impact of Inequality on Economic Growth," WIFO Working Papers 211, WIFO.
    14. Amparo Castelló-Climent, 2010. "Channels through Which Human Capital Inequality Influences Economic Growth," Journal of Human Capital, University of Chicago Press, vol. 4(4), pages 394-450.
    15. Blotevogel, Robert & Imamoglu, Eslem & Moriyama, Kenji & Sarr, Babacar, 2022. "Income inequality measures and economic growth channels," Journal of Macroeconomics, Elsevier, vol. 72(C).
    16. Matías Braun & Francisco Parro & Patricio Valenzuela, 2019. "Does Finance Alter The Relation Between Inequality And Growth?," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 410-428, January.
    17. Tuominen Elina, 2016. "Top-end inequality and growth: Empirical evidence," Working Papers 1608, Tampere University, Faculty of Management and Business, Economics.
    18. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
    19. Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "Causality Between Per Capita Real GDP and Income Inequality in the U.S.: Evidence from a Wavelet Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 135(1), pages 269-289, January.
    20. Alessandra Bonfiglioli, 2004. "Equities and Inequality," 2004 Meeting Papers 256, Society for Economic Dynamics.

    More about this item

    Keywords

    capital market imperfections; inequality; growth; efficiency;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zur:iewwpx:265. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Severin Oswald (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.