Department of Economics

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Browsing Department of Economics by Author "Chakraborty, Shankha"

Now showing 1 - 9 of 9
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    Bank-based versus Market-based Financial Systems: A Growth-theoretic Analysis
    (University of Oregon, Dept. of Economics, 2003-02-01) Chakraborty, Shankha; Ray, Tridip
    We study bank-based and market-based financial systems in an endogenous growth model. Lending to firms is fraught with moral hazard as owner-managers may reduce investment profitability to enjoy private benefits. Bank monitoring partially resolves the agency problem, while market-finance is more ‘hands-off’. A bank-based or market-based system emerges from firm financing choices. It is not possible to say unequivocally which of the two systems is better for growth. The growth rate depends, crucially, on the efficiency of financial and legal institutions. But a bank-based system outperforms a market-based one along other dimensions. Investment and per capita income are higher, and income inequality lower, under a bank-based system. Bank-based systems are more conducive for broad-based industrialization. A temporary income redistribution, under both financial systems, results in permanent improvement in per capita income as well as income distribution.
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    Battling Infection, Fighting Stagnation
    (University of Oregon, Dept of Economics, 2010-09) Chakraborty, Shankha; Papageorgiou, Chris
    Why are some countries mired in poverty and ill health? Can policy facilitate their transition to sustained growth and better living standards? We offer answers using a dynamic model of disease and development. Endogenous transmission of infectious disease generates non-ergodic growth where income alone cannot push a country out of a low-growth development trap. Policy interventions, for example external aid, can successfully accelerate growth only when directed towards improving health and eliminating the burden of infectious disease. Prioritizing improvements to adult mortality over morbidity is better for development.
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    Costly Intermediation and the Poverty of Nations
    (University of Oregon, Dept. of Economics, 2003-01-01) Chakraborty, Shankha; Lahiri, Amartya
    Distortions in private investment due to credit frictions, and in public investment due to corruption and bureaucratic inefficiencies, have both been suggested as important factors in accounting for the cross-country per capita income distribution. We introduce two modifications to the standard one-sector neoclassical growth model to incorporate these distortions. The model is calibrated using data from 79 countries to examine the quantitative implication of these margins. We find that financial frictions account for less than 2% of the cross-country variation in relative income. Even accounting for mismeasurement, financial frictions can typically explain less than 5% of the income gap between the five richest and the five poorest countries in the world. Distortions in the public investment process, on the other hand, seem more promising. There is both more variation in the measured value of the public capital distortion and it can account for more than 25% of the income gap between the richest and poorest countries in our sample.
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    The Development and Structure of Financial Systems
    (University of Oregon, Dept. of Economics, 2003-11-01) Chakraborty, Shankha; Ray, Tridip
    We introduce monitored bank loans and non-monitored tradeable securities as sources of external finance for firms in a dynamic general equilibrium model. Due to frictions arising from moral hazard, access to credit and each type of financial instrument are determined by the wealth distribution. We study the depth of credit markets (financial development) and conditions under which the financial system relies more on either type of external finance (financial structure). We identify initial inequality, investment size and institutional factors as key determinants of financial development, while an economy’s financial structure is shaped by its investment technology and legal and financial institutions. The model’s predictions are consistent with historical and recent development experience.
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    Endogenous Lifetime and Economic Growth
    (University of Oregon, Dept. of Economics, 2002-01-26) Chakraborty, Shankha
    Conventional wisdom attributes the severity of mortality in poorer countries to widespread poverty and inadequate living conditions. This paper considers the possibility that persistent poverty may arise, in turn, from a high incidence of mortality. Endogenous mortality risk is introduced in a two-period overlapping generations model: probability of survival from the first period to the next depends upon health capital that can be augmented through public investment. High mortality societies do not grow fast since shorter lifespans discourage saving and investment; multiple steady-states are possible. High mortality also reduces returns on investments, like education, where risks are undiversifiable. When human capital drives economic growth, countries differing in only health capital do not converge to similar living standards; 'threshold effects' may also result.
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    Inequality, Industrialization and Financial Structure
    (University of Oregon, Dept. of Economics, 2003-01-01) Chakraborty, Shankha; Ray, Tridip
    We introduce monitored bank loans and non-monitored tradeable securities as sources of external finance for firms in a dynamic general equilibrium model. Due to frictions arising from moral hazard, access to credit and each type of financial instrument are determined by the wealth distribution. We study the depth of credit markets (financial development) and conditions under which the financial system relies more on either type of external finance (financial structure). Initial inequality is shown to determine financial development, with high inequality preventing developed systems from emerging. A more equitable income distribution as well as larger capital requirements of industry tend to promote a bank-based system. Investment risk promotes a greater reliance on non- monitored sources, while institutional parameters affect the financial structure in intuitively plausible ways. The model's predictions are consistent with historical and recent development experience.
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    Mortality, fertility, and child labor
    (University of Oregon, Dept. of Economics, 2003-12) Chakraborty, Shankha; Das, Mausumi
    We discuss how child labor problems may persist in developing countries when adult mortality risks are endogenous. Children provide current consumption through child labor and future consumption via an informal social security arrangement. Poorer parents, unable to invest much in their health, face greater mortality risks and are inclined to send their children to work instead of investing in their human capital. Endogenous fertility decisions exacerbate the problem as parents substitute toward quantity investment in children.
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    Mortality, Human Capital and Persistent Inequality
    (University of Oregon, Dept. of Economics, 2003-03-20) Chakraborty, Shankha; Das, Mausumi
    Available evidence suggests high intergenerational correlation of economic status, and persistent disparities in health status between the rich and the poor. This paper proposes a novel mechanism linking the two. We introduce health human capital into a two-period overlapping generations model. Private health investment improves the probability of surviving from the first period of life to the next and, along with education, enhances an individual’s labor productivity. Poorer parents are of poor health, unable to invest much in reducing mortality risk and improving their human capital. Consequently, they leave less for their progeny. Despite convex preferences, technology and complete markets, initial differences in economic and health status may perpetuate across generations.
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    What do Information Frictions do?
    (University of Oregon, Dept. of Economics, 2003-02-14) Bhattacharya, Joydeep; Chakraborty, Shankha
    Numerous researchers have incorporated labor or credit market frictions within simple neoclassical models to (i) facilitate quick departures from the Arrow-Debreu world, thereby opening up the role for institutions, (ii) inject some realism into their models, and (iii) explain cross country differences in output and employment. We present an overlapping generations model with production in which a labor market friction (moral hazard) coexists along with a credit market friction (costly state verification). The simultaneous presence and interaction of these two frictions is studied. We show that credit frictions have a multiplier effect on economic activity, by directly affecting investment and indirectly through the unemployment rate. The labor market friction, on the other hand, affects unemployment in the short- and long-run but has only a short-run effect on capital accumulation.