Financial Liberalizaton and its Distributional Consequences: An Empirical Exploration

Although there has been growing interest in the social impacts of financial deregulation in economies across the world, a large research gap persists. Despite voluminous literature, there has been very little empirical work addressing the distributional consequences of a liberal financial regime. This dissertation seeks to make such an assessment. Developing a theoretical
model and a new and improved index of deregulation, this dissertation uses panel data analysis to test the effects of international capital mobility on the share of labor in national income. The results suggest that capital account openness reduces the labor share of national income, thereby providing evidence for the thesis that capital mobility alters the bargaining power of labor and capital to the detriment of the former. The cross country study is supplemented by two case studies of India and In-
donesia which assess the impacts of both international and domestic deregulation on other aspects of distribution. The results suggest that despite the contrasting approaches to financial liberalization, in both economies it has considerably reduced the scope for policy makers to undertake egalitarian developmental policies and to protect vulnerable sections of society.