Financial development; foreign capital accumulation and poverty: a theoretical RBC model for a small open economy
Abstract
Global economy is characterized by high levels of poverty. Some authors have linked financial development, understood as all those measures that allow the financial system to reduce information and transaction costs, and facilitate the mobilization and efficient location of the capital, to poverty levels of the countries. This paper uses the theoretical framework of Kollintzas and Vassilatos (2000) as a reference for a simple Real Business Cycle (RBC) model endogenizing transaction costs, referring to the financial development of countries. The results show that improvements in financial development affect the optimal decisions of individuals and indirectly affect the remuneration of the factors of production, including labor.
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