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Financial liberalization and inequality

Financial liberalization and inequality. By Yannis Benlalli. Empirical objectives. Compare the distributional impact of a set of financial reforms at a cross country level . Identify the main channels and possible interaction with other determinants of inequality .

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Financial liberalization and inequality

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  1. Financial liberalizationand inequality By Yannis Benlalli

  2. Empirical objectives • Compare the distributional impact of a set of financialreformsat a cross country level. • Identify the main channels and possible interaction withotherdeterminants of inequality. • Link the resultsfound to the income of the top and lowerbound.

  3. Main specification • is the Gini coefficient for country i at year t • is our variable of interest, an indicator of financial liberalization • is a set of control variables • , are the country-year fixed effects

  4. Dataset construction • UNU-WIDER databasedeveloped by Dollar and Kraay(2002) contains Gini coefficients and incomeshare by quintile. • Financial reforms indexes comesfromAbiad et al. (2010) database. Report sevendifferent dimension of financialsectorpolicyreform. All Indices gradedfrom 0 to 3. from « completelyrestricted » to « fullyliberalized ». At the end an overallinedexiscomputedfrom 0 to 21. • It gives a datasetwith 89 countries from 1973-2005

  5. Dataset construction (2) • Creditcontrols and reserverequirements • Interest rate controls • Entry barriers • State ownership in the bankingsector • Capital account restrictions • Supervision of the bankingsector • Securtiesmarketpolicy

  6. Financial reform over time by regions (overall index) Financial liberalizationis a worldwidephenomenon Higherincomeeconomiesremains more liberalized Reversalsoccurs in lowerincome countries.

  7. Descriptive statistics

  8. Correlationamongfinancialliberalization components

  9. Correlationsamong control variables

  10. Financial liberalization and incomeinequality : OLS Significant and positive impact of financialreforms on GINI coeff but negative on povertyheadcount. Ratio. Results not consistent, probablyendogenous , somepolitical and economic factor should influence inequality and financialreforms..

  11. To go further • US interest rate as an instrument : Abiad and Mody(2005) foundnegativerelationshipbt US interest rates and financialregulation US interest rate not expected to affect inequality • Link to theoreticalmodels of inequality to see the interactions withotherdeterminants: How financialliberalization impact inequalitythroughBankingcrisis (trade off stabilityinequality ?) or throughgovernmentdebt

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