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Equity market liberalization, credit constraints and income inequality

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  • Sun, Puyang
  • Sen, Somnath
  • Jin, Shujing

Abstract

This paper provides compelling evidence that equity market liberalization, as the most efficient way to smooth financial market frictions such as credit constraints, can alleviate persistent cross-dynastic income inequality by promoting increased human capital accumulation. The authors examine the effect of equity market liberalization on inequality by using data from 72 countries for 1980-2006. Their measured effect is robust to alternative measures of equity market liberalization. Finally, the authors show that foreign equity flows benefit initially less-active stock markets more than the active ones, providing evidence that foreign equity flows act as a substitute for domestic financial markets. This finding emphasizes the possibility of reducing inequality and poverty through equity market liberalization.

Suggested Citation

  • Sun, Puyang & Sen, Somnath & Jin, Shujing, 2013. "Equity market liberalization, credit constraints and income inequality," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-28.
    • Handle: RePEc:zbw:ifweej:201312
    DOI: 10.5018/economics-ejournal.ja.2013-12
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    More about this item

    Keywords

    income inequality; equity market liberalization; human capital; economic growth;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • G0 - Financial Economics - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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