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 differences in the return to comparable investments across different towns in the state of Tamil Nadu in South India. We explore why these differences 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 di¤erences in returns to capital.
|Place of Publication||Tilburg|
|Number of pages||40|
|Publication status||Published - 2010|
|Name||CentER Discussion Paper|
- credit constraints
- limits to arbitrage