Credit Constraints as a Barrier to Technology Adoption by the Poor: Lessons from South-Indian Small-Scale Fishery

The paper studies the diffusion of a capital intensive technology in a fishing community in South India. It identifies determinants of the timing of technology adoption as well as resulting income and inequality dynamics during this process. Focusing on a capital intensive technology, the study finds that:

• Lack of wealth is a key predictor for delayed adoption;
• Credit constraint is the main reason for delayed technology adoption among the poor;
• During the technology diffusion process, inequality follows Kuznets inverted U-shaped curve;
• Redistributive policy favoring the poor results in accelerated economic growth and a shorter duration of sharpened inequality.
• Inequality and lack of wealth are responsible for a socially inefficient sequence of individual adoptions, whereby the rich and not the most able fishermen adopt technology first. 

The paper concludes that the study village experienced a success story of globalization. According to simulations, technology diffusion for the entire sample is completed in less than five years and income gains for the initially poor are relatively larger than for the rich.