Does Capital Account Liberalization Affect Income Inequality?

Oxford Bulletin of Economics and Statistics

39 Pages Posted: 21 Jun 2019 Last revised: 7 Oct 2020

See all articles by Xiang Li

Xiang Li

Halle Institute for Economic Research

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: August 4, 2020

Abstract

By adopting an identification strategy of difference-in-difference estimation combined with propensity score matching between liberalized and closed countries, this paper provides robust evidence that opening the capital account is associated with an increase in income inequality in developing countries. Specifically, capital account liberalization, in the long run, is associated with a reduction in the income share of the poorest half by 2.66-3.79 percentage points and an increase in that of the richest 10% by 5.19-8.76 percentage points. Moreover, directions and categories of capital account liberalization matter. The relationship is more pronounced when liberalizing inward and equity capital flows.

Keywords: Capital Account Liberalization; Income Inequality; Gini Coefficient; Income Share

JEL Classification: F38, D63

Suggested Citation

Li, Xiang and Su, Dan, Does Capital Account Liberalization Affect Income Inequality? (August 4, 2020). Oxford Bulletin of Economics and Statistics, Available at SSRN: https://ssrn.com/abstract=3404691 or http://dx.doi.org/10.2139/ssrn.3404691

Xiang Li (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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