If there were no impediments to the flow of capital across space, then the returns to capital should be equalized. We provide evidence to the contrary. There are large di¤erences in the return to comparable investments across different towns in the state of Tamil Nadu in South India. We explore why these di¤erences are not arbitraged away - and suggest that if an insider has monopoly power in arbitraging across towns then it is in his profit-maximizing interest to reduce but not eliminate the differences in returns to capital.
|Place of Publication||Tilburg|
|Number of pages||40|
|Publication status||Published - 2010|
|Name||EBC Discussion Paper|
- credit constraints
- limits to arbitrage