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Capital Account Liberalization and Poverty: How Close is the Link?

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  • Philip Arestis
  • Asena Caner

Abstract

The literature on the theoretical and empirical aspects of the relationship between finance and economic growth is both substantial and extensive. The same cannot be said on the relationship between financial development and poverty reduction--an equally important aspect. In this study, we visit the theoretical arguments and conduct an empirical analysis of the relationship between the capital account dimension of financial liberalisation and poverty for developing countries for the period 1985--2005. In particular, we employ the 'system GMM' technique to test whether capital account liberalisation has helped alleviate poverty, and also whether the extent to which capital account liberalisation affects poverty depends on the quality of institutions. We also use OLS and IV techniques to verify our findings. Our findings indicate that there is no statistically significant relationship between the degree of capital account liberalisation during the period and the poverty rate. Developing countries with higher institutional quality have lower poverty rates, but the effect has low statistical significance. A higher degree of capital account liberalisation is associated with a lower income share for the poor. Copyright The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

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Bibliographic Info

Paper provided by TOBB University of Economics and Technology, Department of Economics in its series Working Papers with number 0811.

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Date of creation: Sep 2008
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Handle: RePEc:tob:wpaper:0811

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Citations

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Cited by:
  1. Philip Arestis & Ajit Singh, 2010. "Financial globalisation and crisis, institutional transformation and equity," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 225-238, March.
  2. Asongu, Simplice A, 2013. "Inequality, poverty and quality of institutions: which freedom channels of globalization matter for Africa?," MPRA Paper 46929, University Library of Munich, Germany.
  3. Singh, Ajit, 2011. "Financial globalisation and human development," MPRA Paper 39048, University Library of Munich, Germany.
  4. Canale, Rosaria Rita, 2010. "Microcredit in advanced economies as a "third way”: a theoretical reflection," MPRA Paper 21109, University Library of Munich, Germany.
  5. Yalta, A. Yasemin & Yalta, A. Talha, 2012. "Does financial liberalization decrease capital flight? A panel causality analysis," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 92-100.
  6. Enowbi Batuo, Michael & Asongu, Simplice A., 2012. "The impact of liberalisation policies on income inequality in african countries," MPRA Paper 43344, University Library of Munich, Germany.
  7. Asongu, Simplice, 2013. "New financial development indicators: with a critical contribution to inequality empirics," MPRA Paper 56806, University Library of Munich, Germany.
  8. Asongu Simplice & Michael E. Batuo, 2012. "The Impact of Liberalisation Policies on Inequality in Africa," Working Papers 12/038, African Governance and Development Institute..

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