IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2015-243.html
   My bibliography  Save this paper

Capital Account Liberalization and Inequality

Author

Listed:
  • Davide Furceri
  • Mr. Prakash Loungani

Abstract

This paper examines the distributional impact of capital account liberalization. Using panel data for 149 countries from 1970 to 2010, we find that, on average, capital account liberalization reforms increase inequality and reduce the labor share of income in the short and medium term. We also find that the level of financial development and the occurrence of crises play a key role in shaping the response of inequality to capital account liberalization reforms.

Suggested Citation

  • Davide Furceri & Mr. Prakash Loungani, 2015. "Capital Account Liberalization and Inequality," IMF Working Papers 2015/243, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/243
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=43414
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chen, Show-Lin & Wu, Jyh-Lin, 2005. "Long-run money demand revisited: evidence from a non-linear approach," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 19-37, February.
    2. Luca Agnello & Ricardo M. Sousa, 2012. "How do banking crises impact on income inequality?," Applied Economics Letters, Taylor & Francis Journals, vol. 19(15), pages 1425-1429, October.
    3. Valerie Cerra & Sweta Chaman Saxena, 2008. "Growth Dynamics: The Myth of Economic Recovery," American Economic Review, American Economic Association, vol. 98(1), pages 439-457, March.
    4. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
    5. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    6. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
    7. Cukierman, Alex & Tommasi, Mariano, 1998. "When Does It Take a Nixon to Go to China?," American Economic Review, American Economic Association, vol. 88(1), pages 180-197, March.
    8. Coen N. Teulings & Nikolay Zubanov, 2014. "Is Economic Recovery A Myth? Robust Estimation Of Impulse Responses," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 497-514, April.
    9. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 63-98, National Bureau of Economic Research, Inc.
    10. Ayhan Kose, M. & Prasad, Eswar S. & Taylor, Ashley D., 2011. "Thresholds in the process of international financial integration," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 147-179, February.
    11. Abiad (ADB), Abdul & Furceri (IMF and University of Palermo), Davide & Topalova (IMF), Petia, 2016. "The macroeconomic effects of public investment: Evidence from advanced economies," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 224-240.
    12. Demirguc-Kunt,Asli & Klapper,Leora & Singer,Dorothe & Van Oudheusden,Peter, 2015. "The Global Findex Database 2014 : measuring financial inclusion around the world," Policy Research Working Paper Series 7255, The World Bank.
    13. Lucio Sarno & Mark P. Taylor, 2002. "Purchasing Power Parity and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 1-5.
    14. Mauricio Larrain, 2015. "Editor's Choice Capital Account Opening and Wage Inequality," Review of Financial Studies, Society for Financial Studies, vol. 28(6), pages 1555-1587.
    15. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does financial globalization promote risk sharing?," Journal of Development Economics, Elsevier, vol. 89(2), pages 258-270, July.
    16. Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
    17. Romain Bouis & Orsetta Causa & Lilas Demmou & Romain Duval & Aleksandra Zdzienicka, 2012. "The Short-Term Effects of Structural Reforms: An Empirical Analysis," OECD Economics Department Working Papers 949, OECD Publishing.
    18. Bernal-Verdugo, Lorenzo E. & Furceri, Davide & Guillaume, Dominique, 2013. "Banking crises, labor reforms, and unemployment," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1202-1219.
    19. Dennis P. Quinn & A. Maria Toyoda, 2008. "Does Capital Account Liberalization Lead to Growth?," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1403-1449, May.
    20. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," LIS Working papers 496, LIS Cross-National Data Center in Luxembourg.
    21. Das, Mitali & Mohapatra, Sanket, 2003. "Income inequality: the aftermath of stock market liberalization in emerging markets," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 217-248, February.
    22. Dick van Dijk & Dennis Fok & Philip Hans Franses, 2005. "A multi-level panel STAR model for US manufacturing sectors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(6), pages 811-827.
    23. Harrison, Ann (ed.), 2007. "Globalization and Poverty," National Bureau of Economic Research Books, University of Chicago Press, number 9780226318004, December.
    24. Arjun Jayadev, 2007. "Capital account openness and the labour share of income," Cambridge Journal of Economics, Oxford University Press, vol. 31(3), pages 423-443, May.
    25. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    26. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 90(2), pages 231-242, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Furceri, Davide & Loungani, Prakash, 2018. "The distributional effects of capital account liberalization," Journal of Development Economics, Elsevier, vol. 130(C), pages 127-144.
    2. Davide Furceri & Prakash Loungani & Jonathan D. Ostry, 2019. "The Aggregate and Distributional Effects of Financial Globalization: Evidence from Macro and Sectoral Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(S1), pages 163-198, December.
    3. Davide Furceri & Prakash Loungani & Jonathan Ostry & Pietro Pizzuto, 2020. "Financial Globalization, Fiscal Policies and the Distribution of Income," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(2), pages 185-199, June.
    4. Khan, Haris & Shehzad, Choudhry Tanveer & Ahmad, Ferhana, 2021. "Temporal effects of financial globalization on income inequality," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 452-467.
    5. Kose, M. Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2010. "Financial Globalization and Economic Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4283-4359, Elsevier.
    6. Bodea, Cristina & Houle, Christian & Kim, Hyunwoo, 2021. "Do financial crises increase income inequality?," World Development, Elsevier, vol. 147(C).
    7. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
    8. Abiad, Abdul & Bluedorn, John & Guajardo, Jaime & Topalova, Petia, 2015. "The Rising Resilience of Emerging Market and Developing Economies," World Development, Elsevier, vol. 72(C), pages 1-26.
    9. Jalles, Joao Tovar, 2019. "Crises and emissions: New empirical evidence from a large sample," Energy Policy, Elsevier, vol. 129(C), pages 880-895.
    10. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, December.
    11. Jonathan D. Ostry & Andrew Berg & Siddharth Kothari, 2021. "Growth‐equity trade‐offs in structural reforms," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(2), pages 209-237, May.
    12. Jinyeong Yun, 2023. "Capital Inflows and Income Inequality:Evidence from Panel VAR Approach," MAGKS Papers on Economics 202322, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    13. Jaejoon Woo & Elva Bova & Tidiane Kinda & Y. Sophia Zhang, 2017. "Distributional Consequences of Fiscal Adjustments: What Do the Data Say?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(2), pages 273-307, June.
    14. Afonso, António & Jalles, João Tovar, 2019. "The Fiscal consequences of deflation: Evidence from the Golden Age of Globalization," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 129-147.
    15. Davide Furceri & Prakash Loungani & Jonathan D. Ostry & Pietro Pizzuto, 2022. "Will COVID-19 Have Long-Lasting Effects on Inequality? Evidence from Past Pandemics," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(4), pages 811-839, December.
    16. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    17. de Haan, Jakob & Sturm, Jan-Egbert, 2017. "Finance and income inequality: A review and new evidence," European Journal of Political Economy, Elsevier, vol. 50(C), pages 171-195.
    18. António Afonso & João Tovar Jalles, 2017. "Fiscal Episodes and Market Power," Open Economies Review, Springer, vol. 28(2), pages 233-250, April.
    19. Shastri, Shruti & Giri, A.K. & Mohapatra, Geetilaxmi, 2022. "Foreign capital inflows and poverty linkages in South Asia: Do the forms of capital inflows matter?," Economic Systems, Elsevier, vol. 46(3).
    20. Dong-Hyeon Kim & Joyce Hsieh & Shu-Chin Lin, 2021. "Financial liberalization, political institutions, and income inequality," Empirical Economics, Springer, vol. 60(3), pages 1245-1281, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2015/243. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.