Access To Bank Loans Income Distribution And Economic Growth In Agent Based Modeling Evidence From Evolutionary Perspective

This doctoral dissertation consists of three inter-related studies which constituternits main text, with introductory and summary chapters. The three main studiesrnshare a common feature in that they investigate the link between access to bankrnloans, income distribution and productivity growth. The second chapter is arntheoretical framework that uses agent-based computational economics (ACE) torndetect the link between access to bank loans and functional income distribution.rnThe third chapter uses Ethiopian firm-level and national income data to validaternthe second chapter. The fourth chapter investigates the effect of functionalrnincome distribution on productivity growth from an evolutionary economicrnperspective.rnThe second chapter (first study) focuses on Dosi et al.’s (2013) agent-basedrnmodel which assumes that a well-functioning banking system exists and thatrnindustries are composed of both capital and non-capital goods’ producingrnsectors. As such, monetary policy has a minimal role in impacting functionalrnincome distribution leading to an active use of macroeconomic policy. Chapter 2rnmodifies this model to capture the realities of developing countries where thernbanking system’s supply of services is smaller than what is considered optimal.rnThe system is heavily influenced by inside agents and industries are dominatedrnby non-capital goods’ producing firms.The modified model theoretically links firms’ access to bank loans andrnfunctional income distribution in agent-based modeling. The results based on thernmodified model indicate that when firms have access to bank loans, functionalrnincome distribution improves. Unlike many firm level studies which focus on thernfirms per se, Chapter 2 argues that it is possible to utilize firms’ economicrnactions and their access to bank loans to explain how income inequalities arerngenerated and evolve over time. Theoretically the chapter finds that personalrnincome distribution is an emergent phenomenon. This result is in agreement withrnThomas Schelling’s ‘Micromotives and Macrobehaviour,’ where he establishedrnaggregate behavior as an emergent phenomenon. Its major conclusion is thatrnaccess to bank loans at the firm level improves income distribution in society.rnThe third chapter (second study) empirically validates the theoretical resultsrnobtained in Chapter 2 (first study). It employs the descriptive output andrneconometric (external as is usually said) validation techniques as an indirectrnidentification strategy to examine the link between access to bank loans andrnincome distribution. It uses data from the Ethiopian Central Statistical Agencyrn(CSA) on medium and large scale manufacturing and national personal incomerndistribution data from the Ethiopian Ministry of Finance and EconomicrnDevelopment (MoFED). Its major conclusions are: (i) firms’ access to bankrnloans is one mechanism through which income distributional issues can bernexplained, (ii) firms’ financial structures matter, that is, whatsoever the source ofrnfunds, if they are used as investments in fixed capital, the functional incomerndistribution improves, and (iii) functional income distribution is stronglyrnassociated with personal income distribution. The chapter will contribute tornpolicy and also enrich the limited literature on the finance-inequality relation.rnThe fourth chapter (third study) links functional income distribution tornproductivity growth. Its main focus is on examining how functional incomerndistribution can influence the evolution of productivity thereby promotingrneconomic growth. It employs Nelson and winter’s (1982) evolutionary economic framework, evolutionary theory of economic change and the subsequentrndevelopments in the field of evolutionary economic modeling. These are usedrnjointly with the evolutionary econometric approach which sees economic growthrnas an open ended process. The major conclusion of the fourth chapter (thirdrnstudy) is lack of strong evidence of evolution (intra-industry selection) to fosterrnproductivity growth and re-allocation (structural change).rnThus, the three studies not only shed light on the inter-relationships betweenrnaccess to bank loans, income distribution and productivity growth through a deeprnanalysis of the concepts, theories and their usefulness, but also empiricallyrninvestigate the nature of their causal relationships and estimate their effects.rnThese two aspects will contribute to the growing literature on ACE.

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