{
  "title": "Openness and Inequality: Distributional Impacts of Capital Account Liberalization",
  "publication": "IMF Blog, November 24, 2015",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2015/11/24/openness-and-inequality-distributional-impacts-of-capital-account-liberalization",
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  "summary": "Authors: Davide Furceri, Prakash Loungani",
  "sections": [
    {
      "heading": "Overview and dataset",
      "content": "- Authors: Davide Furceri, Prakash Loungani\n- Publication date: November 24, 2015\n- Dataset: nearly 150 countries from 1970 to 2010\n- Measure of capital account openness: the Chinn-Ito index (based on restrictions on cross-border financial transactions reported by the IMF)"
    },
    {
      "heading": "Main empirical findings",
      "content": "- Capital account liberalization is followed by increases in inequality, as measured by the Gini coefficient.\n- Capital account openness increased across all income groups, with a significant rise at the beginning of the 1990s.\n- Quantified impacts:\n  - Capital account liberalization has typically increased the Gini index by 1 percent within two years of the liberalization.\n  - Capital account liberalization has typically increased the Gini index by 1.5 percent within five years of the liberalization.\n- Robustness: the qualitative result is said to be robust to various stress tests documented in the paper."
    },
    {
      "heading": "Channels and heterogeneity in effects",
      "content": "- Financial development and inclusion:\n  - The increase in inequality after liberalization is smaller in countries with higher levels of financial development and inclusion.\n  - The increase in inequality is higher in countries where financial inclusion is lower (as illustrated by Chart 2 referenced in the text).\n- Crisis transmission:\n  - Liberalization that is not well managed or well sequenced increases the likelihood of financial crises.\n  - The impact of openness on inequality is sharply higher in cases where there is a financial crisis in the immediate aftermath of liberalization (as illustrated by Chart 3 referenced in the text)."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- The results do not imply that countries should not liberalize capital accounts; capital flows can provide substantial benefits, including enhancing efficiency, promoting financial sector competitiveness, and facilitating greater productive investment and consumption smoothing.\n- Cautions and design considerations:\n  - Proceed with caution because capital flows can be volatile and—given their large size relative to domestic markets—pose risks to economic and financial stability.\n  - Where reducing inequality is an important policy goal, design liberalization to address its potential impact on inequality.\n  - Follow the IMF’s institutional view that capital flow liberalization is generally more beneficial and less risky if countries have reached certain levels or thresholds of financial and institutional development.\n  - Ensure liberalization is well managed and accompanied by higher financial inclusion to mute adverse distributional effects.\n\nSource: Openness and Inequality: Distributional Impacts of Capital Account Liberalization (IMF blog post, November 24, 2015).\n\n---\n\n Content in this bundle\n\n- Content unit 111412 — \"The Liberalization and Management of Capital Flows\"\n  - Content unit 111412 — \"The Liberalization and Management of Capital Flows\" (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Content unit 111412 — \"The Liberalization and Management of Capital Flows\" (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Our paper\n- institutional\n\nSource: https://www.imf.org/en/blogs/articles/2015/11/24/openness-and-inequality-distributional-impacts-of-capital-account-liberalization"
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    "Authors: Davide Furceri, Prakash Loungani",
    "Published: November 24, 2015",
    "Authors: Davide Furceri, Prakash Loungani",
    "Publication date: November 24, 2015",
    "Dataset: nearly 150 countries from 1970 to 2010",
    "Measure of capital account openness: the Chinn-Ito index (based on restrictions on cross-border financial transactions reported by the IMF)",
    "Capital account liberalization is followed by increases in inequality, as measured by the Gini coefficient.",
    "Capital account openness increased across all income groups, with a significant rise at the beginning of the 1990s.",
    "Quantified impacts:",
    "Robustness: the qualitative result is said to be robust to various stress tests documented in the paper.",
    "Financial development and inclusion:",
    "Crisis transmission:",
    "The results do not imply that countries should not liberalize capital accounts; capital flows can provide substantial benefits, including enhancing efficiency, promoting financial sector competitiveness, and facilitating greater productive investment and consumption smoothing.",
    "Cautions and design considerations:",
    "**Content unit 111412 — \"The Liberalization and Management of Capital Flows\"**",
    "[Our paper](http://www.imf.org/external/pubs/cat/longres.aspx?sk=43414.0)",
    "[institutional](http://www.imf.org/external/pubs/ft/survey/so/2012/POL120312A.htm)"
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