Access to Bank Loans, Income Distribution and Economic Growth in agent Based Modeling: Evidence from Evolutionary Perspective
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Date
2017-06
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Addis Ababa University
Abstract
This doctoral dissertation consists of three inter-related studies which constitute
its main text, with introductory and summary chapters. The three main studies
share a common feature in that they investigate the link between access to bank
loans, income distribution and productivity growth. The second chapter is a
theoretical framework that uses agent-based computational economics (ACE) to
detect the link between access to bank loans and functional income distribution.
The third chapter uses Ethiopian firm-level and national income data to validate
the second chapter. The fourth chapter investigates the effect of functional
income distribution on productivity growth from an evolutionary economic
perspective.
The second chapter (first study) focuses on Dosi et al.’s (2013) agent-based
model which assumes that a well-functioning banking system exists and that
industries are composed of both capital and non-capital goods’ producing
sectors. As such, monetary policy has a minimal role in impacting functional
income distribution leading to an active use of macroeconomic policy. Chapter 2
modifies this model to capture the realities of developing countries where the
banking system’s supply of services is smaller than what is considered optimal.
The system is heavily influenced by inside agents and industries are dominated
by non-capital goods’ producing firms.The modified model theoretically links firms’ access to bank loans and
functional income distribution in agent-based modeling. The results based on the
modified model indicate that when firms have access to bank loans, functional
income distribution improves. Unlike many firm level studies which focus on the
firms per se, Chapter 2 argues that it is possible to utilize firms’ economic
actions and their access to bank loans to explain how income inequalities are
generated and evolve over time. Theoretically the chapter finds that personal
income distribution is an emergent phenomenon. This result is in agreement with
Thomas Schelling’s ‘Micromotives and Macrobehaviour,’ where he established
aggregate behavior as an emergent phenomenon. Its major conclusion is that
access to bank loans at the firm level improves income distribution in society.
The third chapter (second study) empirically validates the theoretical results
obtained in Chapter 2 (first study). It employs the descriptive output and
econometric (external as is usually said) validation techniques as an indirect
identification strategy to examine the link between access to bank loans and
income distribution. It uses data from the Ethiopian Central Statistical Agency
(CSA) on medium and large scale manufacturing and national personal income
distribution data from the Ethiopian Ministry of Finance and Economic
Development (MoFED). Its major conclusions are: (i) firms’ access to bank
loans is one mechanism through which income distributional issues can be
explained, (ii) firms’ financial structures matter, that is, whatsoever the source of
funds, if they are used as investments in fixed capital, the functional income
distribution improves, and (iii) functional income distribution is strongly
associated with personal income distribution. The chapter will contribute to
policy and also enrich the limited literature on the finance-inequality relation.
The fourth chapter (third study) links functional income distribution to
productivity growth. Its main focus is on examining how functional income
distribution can influence the evolution of productivity thereby promoting
economic growth. It employs Nelson and winter’s (1982) evolutionary economic framework, evolutionary theory of economic change and the subsequent
developments in the field of evolutionary economic modeling. These are used
jointly with the evolutionary econometric approach which sees economic growth
as an open ended process. The major conclusion of the fourth chapter (third
study) is lack of strong evidence of evolution (intra-industry selection) to foster
productivity growth and re-allocation (structural change).
Thus, the three studies not only shed light on the inter-relationships between
access to bank loans, income distribution and productivity growth through a deep
analysis of the concepts, theories and their usefulness, but also empirically
investigate the nature of their causal relationships and estimate their effects.
These two aspects will contribute to the growing literature on ACE.
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Keywords
Bank Loans, Economic Growth