Financial liberalization: Poverty trap or chaos

Tomoo Kikuchi, George Vachadze

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

Abstract

We construct an overlapping generations model in which people are subject to limited pledgeability and uncertainty over entrepreneurial projects. We show that whether financial liberalization generates a poverty trap, an endogenous fluctuation, or both depends on the interaction of pledgeability and uncertainty. Endogenous fluctuation requires a high level of both pledgeability and uncertainty. Poverty trap requires a low level of both. For an intermediate level of both, the initially poor are trapped in poverty while the initially rich fluctuate endogenously.

Original languageEnglish
Pages (from-to)1-9
Number of pages9
JournalJournal of Mathematical Economics
Volume59
DOIs
Publication statusPublished - 2015 Aug 1
Externally publishedYes

Keywords

  • Chaos
  • Endogenous cycles
  • Financial frictions
  • Financial liberalization
  • Uninsurable risks

ASJC Scopus subject areas

  • Economics and Econometrics
  • Applied Mathematics

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