The Aggregate and Distributional Effects of Financial Globalization: Evidence from Macro and Sectoral Data

55 Pages Posted: 7 Oct 2019

See all articles by Davide Furceri

Davide Furceri

International Monetary Fund (IMF)

Prakash Loungani

International Monetary Fund (IMF)

Jonathan D. Ostry

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019

Abstract

We take a fresh look at the aggregate and distributional effects of policies to liberalize international capital flows-financial globalization. Both country- and industry-level results suggest that such policies have led on average to limited output gains while contributing to significant increases in inequality. The country-level results are based on 228 capital account liberalization episodes spanning 149 advanced and developing economies from 1970 to the present. Difference-in-difference estimation using industry-level data for 23 advanced economies suggests that liberalization episodes reduce the share of labor income, particularly for industries with higher external financial dependence, higher natural propensity to use layoffs to adjust to idiosyncratic shocks, and higher elasticity of substitution between capital and labor.

Keywords: Capital account openness, Globalization, inequality

JEL Classification: F13, G32, O11

Suggested Citation

Furceri, Davide and Loungani, Prakash and Ostry, Jonathan D., The Aggregate and Distributional Effects of Financial Globalization: Evidence from Macro and Sectoral Data (September 2019). CEPR Discussion Paper No. DP14001. Available at SSRN: https://ssrn.com/abstract=3464530

Davide Furceri (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Prakash Loungani

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7043 (Phone)
202-623-4740 (Fax)

Jonathan D. Ostry

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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