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The Aggregate and Distributional Effects of Financial Globalization: Evidence from Macro and Sectoral Data

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  • DAVIDE FURCERI
  • PRAKASH LOUNGANI
  • JONATHAN D. OSTRY

Abstract

We take a fresh look at the aggregate and distributional effects of policies to liberalize international capital flows—financial globalization. Both country‐ and industry‐level results suggest that such policies have led on average to limited output gains while contributing to significant increases in inequality. The country‐level results are based on 228 capital account liberalization episodes spanning 149 advanced and developing economies from 1970 to the present. Difference‐in‐difference estimation using industry‐level data for 23 advanced economies suggests that liberalization episodes reduce the share of labor income, particularly for industries with higher external financial dependence, higher natural propensity to use layoffs to adjust to idiosyncratic shocks, and higher elasticity of substitution between capital and labor.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:jmoncb:v:51:y:2019:i:s1:p:163-198
    DOI: 10.1111/jmcb.12668
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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