Joseph P. Joyce — Capital Liberalization and Inequality

Inequality, which has drawn a great deal of comment and analysis following the publication of Thomas Piketty’s Capital in the Twenty-First Century, has sometimes been seen as a byproduct of increased international trade. But now other international economic linkages are being investigated. The International Monetary Fund’s Managing Director, Christine Lagarde, has acknowledged the need to take distributional consequences into considerationwhen designing IMF policy programs. Moreover, Fund economists have contributed to the research on the linkages between financial globalization and inequality.

Davide Furceri and Prakash Loungani of the IMF have investigated the effect of capital account liberalization on inequality. They looked at 58 episodes of capital account reform in 17 advanced economies, and found that the Gini coefficient (a measure of inequality) increased by about 1% a year after liberalization and by 2% after five years. One channel of transmission from the capital account to inequality could be the increased borrowing by domestic firms that allows them to hire skilled workers, who pull ahead of the less-skilled workers....

Neoliberalism is advocacy not only of free markets, but also free trade and free capital flows, where "free" and "liberalization" mean deregulation and privatization.

Economonitor
Capital Liberalization and Inequality
Joseph P. Joyce | Professor of Economics at Wellesley College and the Faculty Director of the Madeleine Korbel Albright Institute for Global Affairs