Credit Markets with Differences in Abilities: Education, Distribution, and Growth.

This article presents an endogenous growth model in which credit markets affect time allocation of individuals with different educational abilities. Credit markets allow the more able to specialize in studying and the less able to specialize in working. This specialization can increase growth and welfare. This article also shows that in economies with high (low) levels of education abilities, the opening of credit markets induces a more disperse (equal) income distribution. The role of intergenerational transfers in overcoming the absence of credit markets is also discussed, as well as other forms of credit markets imperfections. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.