Why Doesn't Technology Flow from Rich to Poor Countries?

Jeremy Greenwood
Juan M. Sanchez
Harold L. Cole
Publication Type: 
Working Papers
Publication Article File: 
Publication Year: 
2012

What determines the technology that a country adopts? While there could be many factors, the efficiency of the country’s financial system may play a significant role. To address this question, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The ability of an intermediary to monitor and control the cash flows of a firm plays an important role in a firm’s decision to adopt a technology. Can such a theory help to explain the differences in total factor productivity and establishment-size distributions across India, Mexico, and the U.S.? Applied analysis suggests that the answer is yes.

This paper was presented at the "Financial Deepening, Macro-Stability, and Growth in Developing Countries" conference, held jointly by the International Monetary Fund, the World Bank, the Consortium on Financial Systems and Poverty, and the UK Department for International Development in September of 2012. The corresponding presentation is also available.

Region: 
Global
Country: 
USA
Country: 
India
Country: 
Mexico
Topic: 
General Equilibrium
Topic: 
Financial Institutions
Topic: 
Economic Modeling