Financial Globalization and Inequality: Capital Flows as a Two-Edged Sword

Abstract

We review the debate on the association of financial globalization with inequality. We show that the within country distributional impact of capital account liberalization is context specific and that different types of flows have different distributional effects. Their overall impact depends on the composition of capital flows, their interaction, and on broader economic and institutional conditions. A comprehensive set of policies – macroeconomic, financial and labour- and product-market specific – is important for facilitating wider sharing of the benefits of financial globalization.

Keywords: capital flows, capital account, remittances, and inequality

JEL Classification: F21, F22, F24, F41, F62, F63, F65, F68