What determines the technology that a country adopts? While there could be many factors, the e ¢ ciency of the country’s …nancial system may play a signi…cant role. To address this question, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The ability of an intermediary to monitor and control the cash ‡ows of a …rm plays an important role in a …rm’s decision to adopt a technology. Can such a theory help to explain the di¤erences in total factor productivity and establishment-size distributions across India, Mexico, and the U.S.? Applied analysis suggests that answer is yes
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