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Financial openness and inequality

Stefan Avdjiev and Tsvetana Spasova

No 17279, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We conduct a comprehensive empirical investigation of the link between inequality and financial openness. We document that the relationship varies considerably not only over time, but also across the main components of total external liabilities, which have been largely overlooked by the existing literature. In emerging market economies (EMEs), an increase in a country's external liabilities is associated with an initial rise and a subsequent fall in inequality. This appears to be driven by the fact that the channels through which financial openness increases inequality tend to be active immediately, while the inequality-decreasing channels tend to operate with a lag. The link between financial openness and inequality tends to be substantially weaker in advanced economies than in EMEs.

Keywords: Financial openness; Gini-based inequality measures; Foreign direct investments; External liabilities (search for similar items in EconPapers)
JEL-codes: F30 F40 O11 (search for similar items in EconPapers)
Date: 2022-05
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