IDEAS home Printed from
   My bibliography  Save this paper

Does financial liberalization affect the distribution of income between wages and profit ?


  • Domenica Tropeano

    (University of Macerata)


Neoclassical theory says that financial liberalization will make the cost of capital decrease, productivity increase and output grow. In reality this does not happen. A key to understanding why it is so is the link between financial liberalization and income distribution. After financial liberalizations both the real interest rate and the supply of credit to the non traded goods sector rise. If the monetary interest rate and the profit rate tend to be equal in the long run, a reshuffling of production favouring the non-traded goods sector will occur; for the mark-up may be higher in this sector than in the traded goods sector due to the lack of international competition. Households, no more credit constrained, will increase their demand for non traded goods; profits in this sector will increase too due to the higher capacity utilization. On the other hand the likely fall in the propensity to save of capitalists will cause a slower capital accumulation. Thus neither investment nor productivity will rise. This may not be due to the working of real forces alone, such as trade liberalization, but rather to the interplay of both monetary and real factors. A vicious circle of lower growth and rising inequality could be set in motion.

Suggested Citation

  • Domenica Tropeano, 2004. "Does financial liberalization affect the distribution of income between wages and profit ?," Working Papers 24-2004, Macerata University, Department of Finance and Economic Sciences, revised Oct 2008.
  • Handle: RePEc:mcr:wpdief:wpaper00024

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Tropeano, Domenica & Michetti, Elisabetta, 2008. "Exchange rate policy and income distribution in an open developing economy," MPRA Paper 6642, University Library of Munich, Germany.

    More about this item


    Financial liberalization; Profit share; Distribution theory;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:mcr:wpdief:wpaper00024. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Silvana Tartufoli). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.