Research

My current research focuses on three main areas:

1. Finance, growth, and development  

2. Income inequalities between and within countries

3. Financial globalization and endogenous fluctuations 

Finance, Growth, and Development: The main questions I ask in this line of research are: What is the relationship between finance and growth? Why do countries with well-developed financial markets grow faster? Why do poor countries lack well-developed financial markets? Why can countries suffer from persistent underdevelopment? Can poverty become a self-fulfilling prophecy? Many factors could contribute to poverty in the developing world. These factors include (a) limited access to external finances, (b) government corruption, (c) lack of public health care, (d) poor public infrastructure, and (e) degradation of agricultural potential. Most economic models describe a poverty trap as a result of coordination failures in a static framework. In such a framework, it is impossible to distinguish poverty traps from temporary negative market outcomes. In my research, I rely on dynamic settings to describe poverty as a self-perpetuating or self-reinforcing condition (economies will remain poor only because they start as poor). In technical terms, models with a poverty trap are characterized by the coexistence of stable steady states at high and low levels of income with disjoint basins of attraction. Therefore, convergence to these steady states depends on the initial condition. I have written several papers on this topic, some of which have appeared in refereed journals (Computational Economics, Economic Modelling, Journal of Economics and Finance, Journal of Economic Behavior & Organization, and Journal of Evolutionary Economics).

Income Inequalities Between and Within Countries:  The main questions I ask in this line of research are: What causes a long-term change in between- and within-country income distribution? Does either type of change in income distribution increase or decrease in the case of economic growth? How is the income distribution affected by financial globalization? Why do some countries seem to gain more than others from global financial markets? In the last several decades, there has been a trend toward global integration of financial markets, increasing the volume of financial instruments traded. Several empirical studies have shown evidence that income inequality between countries has increased during the same period. Is the observed dispersion of world per capita income related to the recent trend of financial globalization? There are few formal models explicitly analyzing the relationships between international financial transactions and economic growth that exhibit conditions under which convergence or divergence may take place. To date, I have written or co-authored several papers on this topic, some of which have appeared in refereed journals (Agricultural and Food Economics, Macroeconomic Dynamics, Journal of Mathematical Economics, International Journal of Economic Theory, and Land Use Policy).

Financial Globalization and Endogenous Fluctuations: The main questions I ask in this line of research are: How does financial globalization affect the volatility of real per capita income? In particular, does financial globalization increase or decrease the severity of boom-and-bust cycles? Few formal models are explaining the relationships between international financial transactions and economic growth. In my research, I try to fill this gap. For example, in one of my research papers, I analyze how imperfections in the credit market can hamper the flow of factors from less productive to more productive firms and result in a lower aggregate total factor productivity (TFP). The depth of such misallocation will depend on per capita income, the level of imperfections in the credit market, and the distribution of entrepreneurial productivity. Under some parameter configurations, I find that per capita income and TFP may affect each other, so that an economic boom may cause higher resource misallocation, lower TFP, and economic recession. At the same time, an economic recession may have a “cleansing effect” on TFP, leading to a lower resource misallocation, higher TFP, and economic boom. In other words, economic success may breed failure, and the failure can become a precondition for success so that the boom-bust cycles in resource misallocation, TFP, and per capita income may become endogenous. In another paper, I study a model in which income and capital flows between countries are jointly determined in a world economy with integrated financial markets. In a setting that combines risky entrepreneurial activity with moral hazard, we find that a shift from autarky to financial integration leads to boom-bust cycles in capital flows, output, and consumption. Moral hazard causes cycles because financial intermediaries incentivize effort by insisting entrepreneurs take an equity share in their own projects. The size of this stake rises with wealth, discouraging entrepreneurship and inhibiting capital formation. The reverse is true when wealth falls, generating cycles. In one of my co-authored papers, I showed that financial liberalization might cause the emergence of a subcritical Neimark-Sacker bifurcation. Before its destabilization, a stable steady state coexists with two invariant closed curves – one attracting and the other repelling. In this way, we reinforce existing results that financial liberalization not only causes amplification and persistence of macroeconomic shocks but also leads to significant changes in the long-run behavior of the economy through the catastrophic transition. To date, I have written several papers on this topic, some of which have appeared in refereed journals (Journal of Economic Theory, Journal of Mathematical Economics, Macroeconomic Dynamics, and Mathematics and Computers in Simulation).