Publication Type
Working Paper
Version
publishedVersion
Publication Date
8-2014
Abstract
We incorporate wealth heterogeneity and the minimum investment requirements in the model of Matsuyama (2004, Econometrica) and provide a complete characterization of symmetry breaking. In particular, we identify the extensive margin of investment as a key channel through which the interest rate may respond positively to capital accumulation, or equivalently, the interest rate can be higher in the rich than in the poor countries. Then, financial market globalization may lead to “uphill” capital flows from the poor to the rich countries, which widens the initial cross-country income gap and leads to income divergence among inherently identical countries, a phenomenon that Matsuyama calls symmetry breaking.
Keywords
Financial frictions, financial market globalization, minimum investment requirements, symmetry breaking
Discipline
Econometrics | Finance
Research Areas
Econometrics
First Page
1
Last Page
30
Citation
ZHANG, Haiping.
Minimum Investment Requirements, Financial Market Globalization, and Symmetry Breaking. (2014). 1-30.
Available at: https://ink.library.smu.edu.sg/soe_research/1699
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.