Ho, Wai-Hong (2008): Credit Market Development and Human Capital Accumulation.
Download (184Kb) | Preview
In a two period overlapping generations economy with asymmetric information, we investigate the interaction between credit market development and human capital accumulation. As is typical, young borrowers supply their endowed unit of labor time to earn wage income which is used as internal funds. In contrast to conventional setups, young lenders distribute theirs between acquiring education and working for earnings. Through identifying the risk types of borrowers by a costly screening technology, a self selection equilibrium is achieved. We find that, at steady state, lenders will allocate more time to acquire education if the cost of screening borrowers falls. Furthermore, a longer duration of lenders' schooling time suppresses borrowers' incentive to cheat thereby enabling lenders to screen less frequently. These results suggest the possibility of a mutual beneficial interplay between credit market development and human capital accumulation. At last, our comparative static analysis show that improvements on borrowers' investment technology promote human capital accumulation but that on lenders' does the opposite.
|Item Type:||MPRA Paper|
|Original Title:||Credit Market Development and Human Capital Accumulation|
|Keywords:||Asymmetric information, Human capital|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
|Depositing User:||Wai-Hong Ho|
|Date Deposited:||12. Aug 2009 14:25|
|Last Modified:||20. Feb 2013 07:57|
Azariadis, C. and Drazen, A. 1990, Threshold externalities in economic development, Quarterly Journal of Economics 105, 501-526.
Azariadis, C. and Smith, B. 1993, Adverse selection in the overlapping generation models: The case of pure exchange, Journal of Economic Theory 60, 227-305.
Barro, R. J. 1999, Determinants of democracy, Journal of Political Economy 107, S158-S183.
Bencivenga, V. R., and Smith, B. D. 1993, Some consequences of credit rationing in an endogenous growth model, Journal of Economic Dynamics and Control 17, 97-122.
Bose, N., and Cothren, R. 1996, Equilibrium loan contracts and endogenous growth in the presence of asymmetric information, Journal of Monetary Economics 38, 363-376.
Bose, N., and Cothren, R. 1997, Asymmetric information and loan contracts in a neoclassical growth model, Journal of Money, Credit and Banking 29, 423-439.
Fender, J. and Ping W., 2003, Educational policy in a credit constrained economy with skill heterogeneity, International Economic Review 44, 939-964.
Fu, J., 1996, The effects of asymmetric information on economic growth, Southern Economic Journal 63, 312-326.
Galor, O. and Zeira J., 1993, Income distribution and macroeconomics, Review of Economic Studies 60, 35-52.
Glaeser, E. L., Porta, R. L., Lopez-De-Silanes, F. and Shleifer, A. 2004, Do institutions cause growth ? Journal of Economic Growth 9, 271-303.
Glomm, G. and Ravikumar, B. 1992, Public versus private investment in human capital: Endogenous growth and income inequality, Journal of Political Economy 100, 818-834.
Gregorio, J. D. and Kim S. J., 2000, Credit markets with differences in abilities: education, distribution, and growth, International Economic Review 41, 579-607.
Gregorio, J. D. , 1996, Borrowing constraints, human capital accumulation, and growth, Journal of Monetary Economics 37, 49-72.
Ho, W. H. and Wang, Y., 2005, Public capital, asymmetric information and economic growth, Canadian Journal of Economics, 38(1), 57-80.
Lucas, R. E. Jr., 1988, On the mechanics of economic development, Journal of Monetary Economics, 22, 3-42.
Tsiddon, D., 1992, Moral hazard trap to growth, International Economic Review 33, 299-321.