Wealth inequality and financial development: Revisiting the symmetry breaking mechanism
Publication Type
Journal Article
Publication Date
4-2017
Abstract
Matsuyama (Econometrica 72(3):853–884, 2004) shows that financial integration may lead to income polarization among inherently identical countries, if these countries are financially underdeveloped, a result he calls “symmetry breaking.” By introducing the minimum investment requirement and within-country wealth inequality into Matsuyama’s framework, I show that wealth inequality is as important as financial development in determining the possibility of symmetry breaking. I then address three practical issues in this model, e.g., the conditions of financial integration, the domestic financial crisis and capital controls, and the world interest rate changes and income volatility.
Keywords
Financial frictions, Financial globalization, Minimum investment requirements, Symmetry breaking, Wealth inequality
Discipline
Economic Theory
Research Areas
Economic Theory
Publication
Economic Theory
Volume
63
Issue
4
First Page
997
Last Page
1025
ISSN
0938-2259
Identifier
10.1007/s00199-016-0977-0
Publisher
Springer (part of Springer Nature): Springer Open Choice Hybrid Journals
Citation
ZHANG, Haiping.
Wealth inequality and financial development: Revisiting the symmetry breaking mechanism. (2017). Economic Theory. 63, (4), 997-1025.
Available at: https://ink.library.smu.edu.sg/soe_research/2254
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1007/s00199-016-0977-0