Credit markets with differences in abilities: Education, distribution, andgrowth

This article presents an endogenous growth model in which credit markets af fect time allocation of individuals with different educational abilities. C redit markets allow the more able to specialize in studying and the less ab le to specialize in working. This specialization can increase growth and we lfare. 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 ove rcoming the absence of credit markets is also discussed, as well as other f orms of credit markets imperfections.