Financial liberalization: Poverty trap or chaos

Tomoo Kikuchi, George Vachadze

Research output: Contribution to journalArticlepeer-review

10 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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