Agénor, Pierre-RichardCanuto, Otaviano2014-03-182014-03-182014-02https://hdl.handle.net/10986/17307This paper studies interactions between access to finance, product innovation, and labor supply in a two-period overlapping generations model with an endogenous skill distribution and credit market frictions. In the model lack of access to finance (induced by high monitoring costs) has an adverse effect on innovation activity not only directly but also indirectly, because too few individuals may choose to invest in skills. If monitoring costs fall with the number of successful projects, multiple equilibria may emerge, one of which, a middle-income trap, characterized by low wages in the design sector, a low share of the labor force engaged in innovation activity, and low growth. A sufficiently ambitious policy aimed at alleviating constraints on access to finance by innovators may allow a country to move away from such a trap by promoting the production of ideas and improving incentives to invest in skills.en-USCC BY 3.0 IGOACCESS TO EXTERNAL FINANCEACCESS TO FINANCEACCOUNTINGADVERSE EFFECTAGENCY PROBLEMSAGGREGATE DEMANDAGGREGATE DEMAND CURVEARBITRAGEASYMMETRIC INFORMATIONAVAILABILITY OF FINANCEBANK CREDITBANK LOANBANK MONITORINGBANK POLICYBANKRUPTCYBANKSBORROWERBORROWINGBUDGET CONSTRAINTBUDGET CONSTRAINTSBUSINESS CYCLECAPITAL GAINSCAPITAL INVESTMENTCAPITAL MARKETSCAPITAL STOCKCASH FLOWSCASH RESERVESCOLLATERALCONSTRAINTS ON ACCESSCONTRACTUAL ARRANGEMENTSCONTRACTUAL RELATIONSHIPCOST OF LOANSCREDIT BUREAUSCREDIT CONSTRAINTSCREDIT HISTORIESCREDIT MARKETCREDITORCREDITORSDEBTDEBT FINANCEDEVELOPING COUNTRIESDEVELOPMENT BANKDEVELOPMENT ECONOMICSDEVELOPMENT OF INNOVATIONDEVELOPMENT POLICYDISCOUNT RATEDIVERSIFIED PORTFOLIODOMESTIC MARKETSEARNINGSECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC PERFORMANCEECONOMIC POLICYECONOMIC RESEARCHELASTICITY OF SUBSTITUTIONEMERGING MARKETSEMPLOYMENTENTREPRENEURIAL ACTIVITIESENTREPRENEURSENTREPRENEURSHIPEQUALITYEQUILIBRIUMEQUITY FINANCEEQUITY FUNDEQUITY FUNDSEQUITY MARKETEQUITY MARKET DEVELOPMENTEXTERNAL CAPITALEXTERNAL FINANCEEXTERNAL FINANCINGEXTERNALITIESEXTERNALITYFEDERAL RESERVEFINANCE CONSTRAINTSFINANCIAL ACCESSFINANCIAL DEVELOPMENTFINANCIAL INNOVATIONFINANCIAL INTERMEDIARIESFINANCIAL INTERMEDIARYFINANCIAL INTERMEDIATIONFINANCIAL LIBERALIZATIONFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL SECTORFINANCIAL SERVICESFINANCIAL SYSTEMFINANCIAL SYSTEMSFIXED COSTFIXED COSTSFORMAL ANALYSISFRAUDFUNDING SOURCESGDPGOVERNMENT INTERVENTIONGOVERNMENT SUBSIDIESGROUP OF FIRMSGROWTH POTENTIALGROWTH RATEHOLDINGHOUSEHOLDSHUMAN CAPITALHUMAN CAPITAL DEVELOPMENTIMPERFECT COMPETITIONINCOMEINCOME GROWTHINCREASING RETURNSINEQUALITYINFORMATION ASYMMETRIESINFORMATION ASYMMETRYINNOVATIONINNOVATIONSINPUT PRICESINTANGIBLEINTELLECTUAL PROPERTYINTEREST RATEINTERNAL FUNDSINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL FINANCEINVESTINGJOB CREATIONLABOR FORCELABOR MARKETLABOR PRODUCTIVITYLABOR SUPPLYLACK OF ACCESSLACK OF COLLATERALLACK OF FINANCELAWSLEGAL CONSTRAINTSLENDERLENDERSLEVYLIMITED LIABILITYLIQUIDITYLOANLOAN CONTRACTLOAN CONTRACTSLOAN RATEMACROECONOMICSMARGINAL COSTMARGINAL PROPENSITY TO SAVEMARGINAL REVENUEMARKET CAPITALIZATIONMARKET DEVELOPMENTMARKET DISTORTIONSMONETARY FUNDMONITORING COSTSMONOPOLISTIC COMPETITIONMONOPOLYMORAL HAZARDMULTIPLE EQUILIBRIANEW ENTRANTSOPPORTUNITY COSTOVERLAPPING GENERATIONS MODELPATENTSPHYSICAL ASSETSPHYSICAL CAPITALPOLITICAL ECONOMYPOOR ACCESSPRICE ELASTICITYPRICE ELASTICITY OF DEMANDPRIVATE EQUITYPRIVATE FINANCEPRIVATE SECTOR CREDITPRODUCTION COSTSPRODUCTION FUNCTIONPRODUCTION INPUTSPRODUCTIVITYPROFITABILITYPROPERTY RIGHTSPROVISION OF LOANSPUBLIC POLICYRATE OF RETURNRATES OF RETURNRETURNSRISK AVERSIONRISK CAPITALSAVINGSSAVINGS RATESKILLED WORKERSSMALL ENTERPRISESSOURCE OF INCOMESOURCES OF FINANCESTART-UPSSTOCK MARKETSTOCK MARKET DEVELOPMENTSTOCKSTAXTAX INCENTIVESTAX RATETELECOMMUNICATIONSTRANSACTIONTRANSACTION COSTSUNSKILLED LABORUNSKILLED WORKERSUTILITY FUNCTIONVENTURE CAPITALVENTURE CAPITAL INVESTMENTVENTURE CAPITALISTSWAGESWEALTH10.1596/1813-9450-6767