Browse > Article
http://dx.doi.org/10.13106/jafeb.2022.vol9.no2.0049

The Impact of Capital Account Openness on Income Inequality: Empirical Evidence from Asia  

ULLAH, Imran (School of Finance, Central University of Finance and Economics)
TUNIO, Fayaz Hussain (Department of Law and Economics, Shaheed Zulfiqar Ali Bhutto University of Law)
ULLLAH, Zia (School of Finance, Central University of Finance and Economics)
NABI, Agha Amad (Institute of Business and Health Management, Dow University of Health and Sciences)
Publication Information
The Journal of Asian Finance, Economics and Business / v.9, no.2, 2022 , pp. 49-59 More about this Journal
Abstract
The relationship between income inequality and capital account openness is empirically investigated in this study, where macroeconomic variables have opposing effects. Panel data used in the study from the KAOPEN Index and World Bank consists of 28 Asian countries and has been examined; it contains annual observations from 1970 to 2018. The data is examined using a random-effect model based on GMM estimates. Income inequality and capital account openness are positively and significantly related, according to our findings. Overall, the findings imply that increasing income gaps reduced capital investment in nations with large discrepancies. The growing economic discrepancy is being caused by the rich's increasing income share at the expense of the poor. In Asia, inward capital account openness exacerbates income inequality, while outward capital account openness exacerbates it. As a result, income inequality slows economic growth, leading to inflation, unemployment, and increased government spending in several Asian countries. Our control factors, GDP, and other secondary school enrolments, all had a statistically significant negative relationship with income inequality. Income disparity has a positive and statistically significant association with government spending, inflation, population, trade openness, and unemployment. Income disparity has a negative association with capital account openness, gross domestic product, and secondary school enrollment.
Keywords
Capital Account Openness; Income Inequalities; Gini-coefficient; GMM; Control Variables;
Citations & Related Records
Times Cited By KSCI : 4  (Citation Analysis)
연도 인용수 순위
1 Piketty, T., & Saez, E. (2003). Income inequality in the United States, 1913-1998. Quarterly Journal of Economics, 118(1), 1-39. https://doi.org/10.1162/00335530360535135   DOI
2 Batuo, M. E., & Asongu, S. A. (2015). The impact of liberalization policies on income inequality in African countries. Journal of Economic Studies, 42(1). https://doi.org/10.1108/JES-05-2013-0065   DOI
3 Beck, T., Demirguc-Kunt, A., & Levine, R. (2007). Finance, inequality, and the poor. Journal of Economic Growth, 12(1), 27-49. https://doi.org/10.1007/s10887-007-9010-6   DOI
4 Bekaert, G., Harvey, C. R., & Lundblad, C. (2005). Does financial liberalization spur growth? Journal of Financial Economics, 77(1), 3-55. https://doi.org/10.1016/j.jfineco.2004.05.007   DOI
5 Bumann, S., Hermes, N., & Lensink, R. (2013). Financial liberalization and economic growth: A meta-analysis. Journal of International Money and Finance, 33, 255-281. https://doi.org/10.1016/j.jimonfin.2012.11.013   DOI
6 de Haan, J., Pleninger, R., & Sturm, J. E. (2017). Does the impact of financial liberalization on income inequality depend on financial development? Some new evidence. Applied Economics Letters, 25(5), 313-316. https://doi.org/10.1080/13504851.2017.1319554   DOI
7 Delis, M. D., Hasan, I., & Kazakis, P. (2014). Bank regulations and income inequality: Empirical evidence. Review of Finance, 18(5), 1811-1846. https://doi.org/10.1093/rof/rft039   DOI
8 Saafi, S., Bel Haj Mohamed, M., & Ben Doudou, M. (2016). Causal nexus between financial integration and economic growth: Does nonlinearity matter? Journal of Economic Integration, 31(4), 817-854. https://doi.org/10.11130/jei.2016.31.4.817   DOI
9 Galor, O., & Moav, O. (2004). From physical to human capital accumulation: Inequality and the process of development. Review of Economic Studies, 71(4), 1001-1026. https://doi.org/10.1111/0034-6527.00312   DOI
10 Gehringer, A. (2013). Growth, productivity, and capital accumulation: The effects of financial liberalization in the case of European integration. International Review of Economics and Finance, 25, 291-309. https://doi.org/10.1016/j.iref.2012.07.015   DOI
11 Gehringer, A. (2015). Uneven effects of financial liberalization on productivity growth in the EU: Evidence from a dynamic panel investigation. International Journal of Production Economics, 159, 334-346. https://doi.org/10.1016/j.ijpe.2014.05.003   DOI
12 Jaumotte, F., & Osorio, C. (2015). Inequality and labor market institutions. Staff Discussion Notes, 15(14), 1. https://doi.org/10.5089/9781513577258.006   DOI
13 Jung, J. W., & KIim, K. (2018). Financial market integration and income inequality. SSRN Journal, 10, 147. https://doi.org/10.2139/ssrn.3299420   DOI
14 Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7   DOI
15 Li, X., & Su, D. (2019). Does capital account liberalization affect income inequality? SSRN Electronic Journal, 1, 69. https://doi.org/10.2139/ssrn.3404691   DOI
16 Narayan, P. K., & Narayan, S. (2013). The short-run relationship between the financial system and economic growth: New evidence from regional panels. International Review of Financial Analysis, 29, 70-78. https://doi.org/10.1016/j.irfa.2013.03.012   DOI
17 Ben Naceur, S., Ghazouani, S., & Omran, M. (2007). The determinants of stock market development in the Middle-Eastern and North African region. Managerial Finance, 33(7), 477-489. https://doi.org/10.1108/03074350710753753   DOI
18 Bumann, S., & Lensink, R. (2016). Capital account liberalization and income inequality. Journal of International Money and Finance, 61, 143-162. https://doi.org/10.1016/j.jimonfin.2015.10.004   DOI
19 Claessens, S., & Perotti, E. (2007). Finance and inequality: Channels and evidence. Journal of Comparative Economics, 35(4), 748-773. https://doi.org/10.1016/j.jce.2007.07.002   DOI
20 de Haan, J., & Sturm, J. E. (2017). Finance and income inequality: A review and new evidence. European Journal of Political Economy, 50(4), 171-195. https://doi.org/10.1016/j.ejpoleco.2017.04.007   DOI
21 Eichengreen, B., & Leblang, D. (2003). Capital account liberalization and growth: Was Mr. Mahathir right? International Journal of Finance and Economics, 8(3), 205-224. https://doi.org/10.1002/ijfe.208   DOI
22 De Nicolo, G., & Juvenal, L. (2014). Financial integration, globalization, and real activity. Journal of Financial Stability, 10(1), 65-75. https://doi.org/10.1016/j.jfs.2013.04.004   DOI
23 Demirguc-Kunt, A., & Levine, R. (2008). Finance, financial sector policies, and long-run growth. World Bank Policy Research Working Paper, 94, 4469. https://doi.org/10.1596/1813-9450-4469   DOI
24 Furceri, D., & Loungani, P. (2018). The distributional effects of capital account liberalization. Journal of Development Economics, 130, 127-144. https://doi.org/10.1016/j.jdeveco.2017.09.007   DOI
25 Yair, M. (1978). On the pooling of time series and cross-section data. Econometrica, 46(1), 69-85. https://www.jstor.org/stable/1913646   DOI
26 Edwards, S. (2001). Capital mobility and economic performance: Are emerging economies different? NBER Working Paper 8076, 3(5), 1-34. https://doi.org/10.3386/w8076   DOI
27 Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review, 45(1), 1-28. https://assets.aeaweb.org/asset-server/files/9438.pdf
28 Pesaran, M. H., Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621-634. https://doi.org/10.1080/01621459.1999.10474156   DOI
29 Zhang, R., & Ben Naceur, S. (2016). Financial development, inequality, and poverty: Some international evidence. International Review of Economics and Finance, 61, 1-2. https://doi.org/10.1016/j.iref.2018.12.015   DOI
30 Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics, 68(1), 164. https://doi.org/10.1016/0304-4076(94)01644-F   DOI
31 Rodrik, D. (1998). Why do more open economies have bigger governments? Journal of Political Economy, 106(5), 997-1032. https://doi.org/10.1086/250038   DOI
32 Ratnawati, K. (2020). The Impact of Financial Inclusion on Economic Growth, Poverty, Income Inequality, and Financial Stability in Asia. The Journal of Asian Finance, Economics and Business, 7(10), 73-85. https://doi.org/10.13106/jafeb.2020.vol7.no10.073   DOI
33 Li, J., & Yu, H. (2014). Income inequality and financial reform in Asia: The role of human capital. Applied Economics, 46(24), 2920-2935. https://doi.org/10.1080/00036846.2014.916390   DOI
34 Ang, J. B. (2010). Finance and inequality: The case of India. Southern Economic Journal, 76(3), 738-761. https://doi.org/10.4284/sej.2010.76.3.738   DOI
35 Arestis, P., & Caner, A. (2004). Financial liberalization and poverty: Channels of influence. Cambridge Journal of Regions, Economy, and Society, 2(2), 229-244. https://doi.org/10.1093/cjres/rsp012   DOI
36 Gao, T. (2005). Foreign direct investment and growth under economic integration. Journal of International Economics, 67(1), 157-174. https://doi.org/10.1016/j.jinteco.2004.11.003   DOI
37 Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 46(6), 1251-1271. https://www.jstor.org/stable/1913827   DOI
38 Kaminsky, G. L., & Schmukler, S. L. (2008). Short-run pain, long-run gain: Financial liberalization and stock market cycles. Review of Finance, 12(2), 253-292. https://doi.org/10.1093/rof/rfn002   DOI
39 Nguyen, T. T. H., Nguyen, T. T. H., Nguyen, T. L. H., & Nguyen, V. C. (2020). The impact of international integration on the inequality of income between rural and urban areas in Vietnam. The Journal of Asian Finance, Economics and Business, 7(3), 277-287. https://doi.org/10.13106/jafeb.2020.vol7.no3.277   DOI
40 Ali, J., Khan, M. A., Wadood, M., & Khan, U. S. (2021). Revisiting Financial Inclusion and Income Inequality Nexus: Evidences from Selected Economies in Asia. The Journal of Asian Finance, Economics and Business, 8(12), 19-29. https://doi.org/10.13106/jafeb.2021.vol8.no12.0019   DOI
41 Ahmed, A. D. (2011). International financial integration, investment, and economic performance in sub-Saharan African countries. Global Economy Journal, 11(4). https://doi.org/10.2202/1524-5861.1712   DOI
42 Ahmed, A. D. (2016). Integration of financial markets, financial development, and growth: Is Africa different? Journal of International Financial Markets, Institutions, and Money, 42, 43-59. https://doi.org/10.1016/j.intfin.2016.01.003   DOI