Using an overlapping-generations growth model featuring financial intermediation, I find
that inefficiencies in technology to deal with private debt distress (bankruptcy
technology), and obstacles to entrepreneurship (high costs of doing business) have
significant negative effects on the income per capita and welfare of developing countries.
These inefficiencies may also interact in perverse ways, futher amplifying the negagtive
effects in the long run. The results provide strong rationale for structural reforms that
simultaneously speed up the resolution of private sector insolvency, improve creditor
protection, and eliminate obstacles to entrepreneurship.