Growing Pains in financial development : institutional weakness and investment efficiency
Author(s)Green, Daniel (Daniel Weiss); Liu, Ernest Siyuan
Institutional weakness and investment efficiency
Massachusetts Institute of Technology. Department of Economics.
Daron Acemoglu and Jonathan Parker.
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There is little evidence that the expansion of microfinance has reduced poverty, but is instead increasingly associated with problematic multiple borrowing at high interest rates and high levels of debt and default. We develop a model that rationalizes these outcomes-if entrepreneurs cannot commit to exclusive borrowing from a single lender, expanding financial access by introducing multiple lenders may severely backfire. Capital allocation is distorted away from the most productive uses. Entrepreneurs choose inefficient and limited-growth endeavors. These problems are exacerbated when borrowers have access to more lenders, explaining why increased access to finance does not always improve outcomes.
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, 2017.Thesis: S.M. in Economics, Massachusetts Institute of Technology, Department of Economics, 2017.Cataloged from PDF version of thesis.Includes bibliographical references (pages 51-52).
DepartmentSloan School of Management.; Massachusetts Institute of Technology. Department of Economics.
Massachusetts Institute of Technology
Sloan School of Management., Economics.