Credit Rationing, Risk Aversion and Industrial Evolution in Developing Countries

Working Paper No. 14116 Relative to their counterparts in high-income regions, entrepreneurs in developing countries face less efficient financial markets, more volatile macroeconomic conditions, and higher entry costs. This paper develops a dynamic empirical model that links these features of the b...

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Bibliographic Details
Published in:NBER Working Paper Series 2008-06, p.14116
Main Authors: Bond, Eric, Tybout, James R, Utar, Hâle
Format: Article
Language:English
Subjects:
Borrowing
Consumption
Cost control
Developing countries
Econometrics
Economic theory
Economics
Entrepreneurs
Entrepreneurship
Households
Income distribution
LDCs
Macroeconomics
Productivity
Risk aversion
Securities markets
Volatility
Wealth
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Summary:Working Paper No. 14116 Relative to their counterparts in high-income regions, entrepreneurs in developing countries face less efficient financial markets, more volatile macroeconomic conditions, and higher entry costs. This paper develops a dynamic empirical model that links these features of the business environment to cross-firm productivity distributions, entrepreneurs' welfare, and patterns of industrial evolution. Applied to panel data on Colombian apparel producers, the model yields econometric estimates of a credit market imperfection index, the sunk costs of creating a new business, and a risk aversion index (inter alia). Model-based counterfactual experiments suggest that improved intermediation could dramatically increase the return on assets for entrepreneurial households with modest wealth, and that the gains are particularly large when the macro environment is relatively volatile.
ISSN:0898-2937
DOI:10.3386/w14116