Capital Account Liberalisation Does Worsen Income Inequality
IWH Discussion Papers,
This study examines the relationship between capital account liberalisation and income inequality. Adopting a novel identification strategy, namely a difference-in-difference estimation combined with propensity score matching between the liberalised and closed countries, we provide robust evidence that opening the capital account is associated with an adverse impact on income inequality in developing countries. The main findings are threefold. First, fully liberalising the capital account is associated with a small rise of 0.07-0.30 standard deviations in the Gini coefficient in the short-run and a rise as large as 0.32-0.62 standard deviations in the ten years after liberalisation, on average. Second, widening income inequality is the outcome of the growing income share of the rich at the cost of the poor. The long-term effect of capital account liberalisation includes a reduction in the income share of the poorest half by 2.66-3.79 percentage points and an increase in the income share of the richest 10% by 5.19-8.76 percentage points. Third, the directions and categories of capital account liberalisation matter. Inward capital account liberalisation is more detrimental to income equality than outward capital account liberalisation, and free access to the international equity market exacerbates income inequality the most, while foreign direct investment has an insignificant impact on inequality.
Drawing Conclusions from Structural Vector Autoregressions Identified on the Basis of Sign Restrictions
NBER Working Paper No. 26606,
This paper discusses the problems associated with using information about the signs of certain magnitudes as a basis for drawing structural conclusions in vector autoregressions. We also review available tools to solve these problems. For illustration we use Dahlhaus and Vasishtha's (2019) study of the effects of a U.S. monetary contraction on capital flows to emerging markets. We explain why sign restrictions alone are not enough to allow us to answer the question and suggest alternative approaches that could be used.
Members & Research Doctoral Students Annika Backes ; Doctoral thesis project: tba Tommaso B ighelli ; Doctoral thesis project: tba ...
Study Programme The course programme is a structured curriculum that provides...
Economy Recovers from the Shutdown – But a Quick Return to Pre-crisis Normality is Unlikely The German economy has...
IWH Alumni The IWH would like to stay in contact with its former employees. We...
Centre for Evidence-based Policy Advice
Centre for Evidence-based Policy Advice (IWH-CEP) ...
IWH Bankruptcy Research
IWH Bankruptcy Research The Bankruptcy Research Unit of the Halle Institute for...
Imprint and Disclaimer ...