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- Title
CREDIT AND GROWTH UNDER LIMITED COMMITMENT.
- Authors
AZARIADIS, COSTAS; KAAS, LEO
- Abstract
We consider a linear growth model with idiosyncratic productivity shocks in which producers cannot commit to repay their loans. Borrowing constraints are determined endogenously by the borrowers' incentives to repay, assuming that defaulters lose a share of output and are excluded from future trade in the credit market. We characterize necessary and sufficient conditions for the enforceability of a first-best equilibrium growth path. Weak property rights, impatient producers, and small productivity differentials can make the efficient growth path nonenforceable and lead to an inefficient equilibrium with binding borrowing constraints. For some economies, multiple balanced growth paths coexist.
- Subjects
ENDOGENOUS growth (Economics); LOANS; REPAYMENTS; ECONOMIC equilibrium; ECONOMIC development; PROPERTY rights; COMMERCE
- Publication
Macroeconomic Dynamics, 2008, Vol 12, Issue S1, p20
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S136510050707006X