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Financial openness and inequality

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  • Avdjiev, Stefan
  • Spasova, Tsvetana

Abstract

We conduct a comprehensive empirical investigation of the link between inequality and financial openness. We document that the relationship varies considerably not only over time, but also across the main components of total external liabilities, which have been largely overlooked by the existing literature. In emerging market economies (EMEs), an increase in a country's external liabilities is associated with an initial rise and a subsequent fall in inequality. This appears to be driven by the fact that the channels through which financial openness increases inequality tend to be active immediately, while the inequality-decreasing channels tend to operate with a lag. The link between financial openness and inequality tends to be substantially weaker in advanced economies than in EMEs.

Suggested Citation

  • Avdjiev, Stefan & Spasova, Tsvetana, 2022. "Financial openness and inequality," CEPR Discussion Papers 17279, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17279
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    More about this item

    Keywords

    Financial openness; Gini-based inequality measures; Foreign direct investments; External liabilities;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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