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Full-Text Articles in Social and Behavioral Sciences
Trade Integration, Income Divergence, And Global Imbalances, Haiping Zhang
Trade Integration, Income Divergence, And Global Imbalances, Haiping Zhang
Research Collection School Of Economics
We embed financial frictions and sector-specific minimum investment requirements (MIR) in a two-factor, two-sector, overlapping-generation model and showthat whether trade integration leads to convergence of the income levels among member states depends on their level of financial development. It helps reconcilethe mixed empirical evidence on trade integration and income dynamics in differentgroups of countries from the institutional perspective. In the recent decades, trade globalization has allowed developed countries to specialize towards the high-MIR, high-return production stages and tasks through international fragmentation of production and global sourcing. In our model, the “sectors” can be interpreted broadly as production stages and tasks. …
Wealth Inequality And Financial Development: Revisiting The Symmetry Breaking Mechanism, Haiping Zhang
Wealth Inequality And Financial Development: Revisiting The Symmetry Breaking Mechanism, Haiping Zhang
Research Collection School Of Economics
No abstract provided.
Minimum Investment Requirements, Financial Market Globalization, And Symmetry Breaking, Haiping Zhang
Minimum Investment Requirements, Financial Market Globalization, And Symmetry Breaking, Haiping Zhang
Research Collection School Of Economics
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 …
Trade And Financial Integration, Extensive Margin, And Income Divergence, Haiping Zhang
Trade And Financial Integration, Extensive Margin, And Income Divergence, Haiping Zhang
Research Collection School Of Economics
We revisit the classical question on economic integration and income convergence in a two-sector OLG model with financial frictions and sectoral heterogeneity in minimum investment requirements (MIR, hereafter). The extensive margin of investment is a critical channel through which aggregate income may become a determinant of comparative advantage. Free trade allows the rich (poor) country to specialize partially or completely in the high-MIR (low-MIR) sector which has a high (low) return endogenously. The specialization effect interacts with the neoclassical effect, which may lead to income divergence among inherently identical countries. Similarly, financial integration may also lead to income divergence through …
Minimum Investment Requirement, Financial Integration And Economic (In)Stability: A Refinement To Matsuyama (2004), Haiping Zhang
Minimum Investment Requirement, Financial Integration And Economic (In)Stability: A Refinement To Matsuyama (2004), Haiping Zhang
Research Collection School Of Economics
This note proposes a simple, more precise, necessary condition for symmetry breaking in Matsuyama (Financial Market Globalization, Symmetry-Breaking, and Endogenous Inequality of Nations, Econometrica, 2004 ), i.e., the positive interest rate response to income changes, which essentially arises from the assumptions of financial frictions and minimum investment size requirement of individual projects. This condition also holds under the more general settings. Thus, this note o ers an empirically testable hypothesis, i.e., Matsuyama's symmetry breaking is more likely, if the interest rate response to income changes is positive and sufficiently large.
Financial Development, International Capital Flows, And Aggregate Output, Jürgen Von Hagen, Haiping Zhang
Financial Development, International Capital Flows, And Aggregate Output, Jürgen Von Hagen, Haiping Zhang
Research Collection School Of Economics
We develop a tractable two-country overlapping-generations model and show that cross-country differences in financial development can explain three recent empirical patterns of international capital flows: Financial capital flows from relatively poor to relatively rich countries, while foreign direct investment flows in the opposite direction; net capital flows go from poor to rich countries; despite its negative net international investment positions, the United States receives a positive net investment income. International capital mobility affects output in each country directly through the size of domestic investment and indirectly through the aggregate saving rate. Under certain conditions, the indirect effect may dominate the …