Hostname: page-component-cd9895bd7-jkksz Total loading time: 0 Render date: 2024-12-27T05:15:08.599Z Has data issue: false hasContentIssue false
  • English
  • Français

ENDOGENOUS INEQUALITY OF NATIONS THROUGH FINANCIAL ASSET MARKET INTEGRATION

Published online by Cambridge University Press:  05 May 2010

Volker Böhm  and
George Vachadze
Volker Böhm*
Affiliation:
Bielefeld University
George Vachadze
Affiliation:
Bielefeld University
*
Address correspondence to: Volker Böhm, Department of Economics, Bielefeld University, Postfach 100 131, D-33501 Bielefeld, Germany; e-mail: vboehm@wiwi.uni-bielefeld.de.
Get access Rights & Permissions [Opens in a new window]

Abstract

The paper analyzes an endogenous mechanism leading perfectly symmetric economies to diverge in the long run after unifying their financial asset markets. The standard growth model with overlapping generations of consumers (OLG) is extended to include uncertainty and a financial asset. In the absence of an international asset market, the two autarkic economies converge to the same globally attracting steady state under rational expectations dynamics. When the two asset markets are unified internationally, additional asymmetric steady states appear, implying that the steady state with equal levels of capital becomes unstable, causing symmetry breaking. The paper derives general sufficient conditions for a saddle node bifurcation of the symmetric steady state. A numerical example shows that these effects occur, in particular when the production function and the function of absolute risk aversion are isoelastic.

Keywords

Asset Market IntegrationCapital AccumulationNonconvergenceSymmetry Breaking
Type
Articles
Information
Macroeconomic Dynamics , Volume 14 , Issue 3 , June 2010 , pp. 285 - 310
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Bianchi, Marco (1997) Testing for convergence: evidence from non-parametric multimodality tests. Journal of Applied Econometrics 12, 393–409.Google Scholar
Böhm, Volker, Kikuchi, Tomoo, and Vachadze, George (2007) Risk, factor substitution, and asset market integration. In Franz, Wolfgang, Ramser, Hans Jürgen, and Stadler, Manfred (eds.), Dynamik Internationaler Märkte, Wirtschaftswissenschaftliches Seminar Ottobeuren, pp. 49–69. Tübingen, Germany: Mohr Siebeck.Google Scholar
Böhm, Volker and Vachadze, George (2008) Capital accumulation with tangible assets. Journal of Economic Behavior and Organization 68, 248–257.CrossRefGoogle Scholar
Böhm, Volker and Wenzelburger, Jan (2004) Expectational leads in economic dynamical systems. In Barnett, William A., Deissenberg, Christophe, and Feichtinger, Gustav (eds.), Economic Complexity: Non-linear Dynamics, Multi-agents Economies, and Learning, pp. 333–361. Amsterdam: Elsevier.CrossRefGoogle Scholar
Durlauf, Steven N. and Johnson, Paul (1995) Multiple regimes and cross-country growth behaviour. Journal of Applied Econometrics 10, 365–384.Google Scholar
Jones, Charles I. (1997) On the evolution of the world income distribution. Journal of Economic Perspectives 3, 19–36.Google Scholar
Kikuchi, Tomoo (2008) International asset market, nonconvergence, and endogenous fluctuations. Journal of Economic Theory 139, 310–334.CrossRefGoogle Scholar
Matsuyama, Kiminori (1996) Why are there rich and poor countries?: Symmetry-breaking in the world economy. Journal of the Japanese and International Economies 10, 419–439.CrossRefGoogle Scholar
Matsuyama, Kiminori (2004) Financial market globalization, symmetry-breaking and endogeneous inequality of nations. Econometrica 72, 853–884.Google Scholar
McCallum, Bennett T. (1998) Solutions to linear rational expectations models: A compact exposition. Economics Letters 61, 143–147.CrossRefGoogle Scholar
McCallum, Bennett T. (1999) Role of the minimal state variable criterion in rational expectations models. International Tax and Public Finance 6, 621–639.Google Scholar
Quah, Danny (1997) Empirics for economic growth and distribution: stratification, polarization, and convergence club. Journal of Economic Growth 2, 27–59.CrossRefGoogle Scholar
Spear, Stephen E. (1988) Existence and local uniqueness of functional rational expectations equilibria in dynamic economic system models. Journal of Economic Theory 44, 124–155.CrossRefGoogle Scholar