Global Externality Trap: Capital Market Integration as Solution or Risk?
The article explores how a global problem affects only certain people, leading to economic challenges. By using a model with two agents, the researchers show that unequal impacts can create different economic outcomes. If one agent has to spend a lot of money to fix the problem, they may get stuck in a cycle of poverty. Opening up the affected region's capital market can help escape this trap, but it may not always benefit both agents. Capital market integration can eliminate the poverty trap, but it may not be the best option for everyone involved.