Journal Article

No. 2013-12 | March 22, 2013
Equity Market Liberalization, Credit Constraints and Income Inequality PDF Icon

Abstract

This paper provides compelling evidence that equity market liberalization, as the most efficient way to smooth financial market frictions such as credit constraints, can alleviate persistent cross-dynastic income inequality by promoting increased human capital accumulation. The authors examine the effect of equity market liberalization on inequality by using data from 72 countries for 1980–2006. Their measured effect is robust to alternative measures of equity market liberalization. Finally, the authors show that foreign equity flows benefit initially less-active stock markets more than the active ones, providing evidence that foreign equity flows act as a substitute for domestic financial markets. This finding emphasizes the possibility of reducing inequality and poverty through equity market liberalization.

Data Set

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JEL Classification

F41 O16 O15 O11 G0 F36

Citation

Puyang Sun, Somnath Sen, and Shujing Jin (2013). Equity Market Liberalization, Credit Constraints and Income Inequality. Economics: The Open-Access, Open-Assessment E-Journal, 7 (2013-12): 1—28. http://dx.doi.org/10.5018/economics-ejournal.ja.2013-12

Assessment

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