Access to bank Loans, income distribution and economic growth in agent based Modeling: evidence from evolutionary perspective
Creators: name: Atnafu, Gebremeskel
Publisher: name: National Academic Digital Repository of Ethiopia
Year: 2017

description: 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.