Endogenous Capital Market Imperfections, Human Capital, and Intergenerational Mobility Articles uri icon

authors

  • HIDALGO CABRILLANA, ANA

publication date

  • November 2009

start page

  • 285

end page

  • 298

issue

  • 2

volume

  • 90

International Standard Serial Number (ISSN)

  • 0304-3878

Electronic International Standard Serial Number (EISSN)

  • 1872-6089

abstract

  • In this paper, capital market imperfections are endogenized considering an adverse selection problem between banks and borrowers. We develop a growth model with linear OLG wealth dynamics, where agents are heterogeneous in terms of
    observable wealth and ability, which is private information. We show that banks
    react to this informational asymmetry by granting higher loans to talented
    borrowers. This, in turn, helps poor and talented agents to become educated and
    catch up with the rich agents. Furthermore, the credit market friction leads to
    greater human capital accumulation.