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.& and has not helped to reduce wealth inequalityThe different rates of development of financial openness have so far prevented a conver-gence of wealth inequalities between developed and emerging countries (table 2.1).Indeed,despite the potential of capital flows to alleviate borrowing constraints for low-incomehouseholds, their rise has been so disjointed, geographically speaking, that they have not yet 432.The role of financial globalizationTable 2.1.Wealth inequality in selected countriesWealth Gini Income Gini Year(2000)74.0 50.1 2005ArgentinaAustralia 62.2 31.2 2003Bangladesh 65.8 33.5 1996Brazil 78.3 56.6 2004Canada 66.3 31.5 2000China 55.0 44.9 2003France 73.0 27.8 2000Germany 67.1 31.1 2004India 66.9 36.5 1997Indonesia 76.3 39.6 1996Italy 60.9 33.3 2000Japan 54.7 31.9 1998Republic of Korea 57.9 37.2 1998Mexico 74.8 49.9 2004Nigeria 73.5 52.2 1996Pakistan 69.7 39.8 1996Spain 56.5 33.6 2000Taiwan (China) 65.4 33.9 2003Thailand 70.9 42.7 2001United States 80.1 46.4 2004Viet Nam 68.0 37.3 1998Source: Davies et al., 2008; World Bank, 2008.affected wealth inequalities in developing countries, which remain  on average  higherthan in developed economies.Moreover, global wealth inequality as measured by theglobal Gini coefficient stands at 89.2, substantially higher than most measures for globalincome inequality (Anand and Segal, 2008) and higher than would be suggested by therelationship between wealth and income inequality within developed countries.In short,the current dynamics of financial globalization have prevented a further convergence ofwealth both across and within countries, with income inequality in low-income countriesremaining unaffected by financial openness.This is in marked contrast with the sanguinepredictions of some proponents of financial globalization.B.Financial markets and pro-poor growthFinancial liberalization has the potential to improve trend growth&Standard growth theory predicts that financial liberalization helps to accelerate growthin low-income countries by raising domestic savings and giving access to global capitalflows (Fisher, 2003; Obstfeld, 1998; Summers, 2000) and at the same time developingthe domestic financial market, which is itself conducive to the more efficient allocationof resources and higher growth (King and Levine, 1993).The increase in available fundsalso brings interest rates down in emerging economies, thereby fostering investment andemployment growth, and helps to alleviate poverty and reduce between-country income44 inequality by lowering the borrowing constraints of the households with the least accessWorld of Work Report 2008: Income Inequalities in the Age of Financial Globalizationto finance.Moreover, with improved opportunities for international risk-sharing, coun-tries may be better able to exploit gains from specialization in international trade (Ace-moglu and Zilibotti, 1997; Kalemi-Özcan, Sørensen and Yosha, 2001).Lastly, additional,indirect benefits may be expected from the transfer of technology and knowledge thatcomes with foreign direct investment, which improves total factor productivity (Bonfig-lioli, 2007; Kose, Prasad and Terrones, 2008).The least controversial of these claims relates to a basic aspect of financial liberalization,that is, the liberalization of the domestic financial system.This typically involves disman-tling systems of credit rationing and interest rates controls.The case for such liberaliza-tion was made in the early 1970s in the literature on development economics (McKinnon,1973; Shaw, 1973).It was argued, that in the context of the import substitution strategiesthat were then prevalent in most developing countries, controls that repressed the growthof the financial system lowered growth and exacerbated general inefficiency in the allo-cation of resources.They also increased inequality in the distribution of income by sup-porting increased industrial concentration and limiting access to credit for enterprises thatwere not favoured by the economic planners.Removing these distortions, the argumentwent, would both increase economic growth and reduce income inequality.A basic way in which this could be done is to lift ceilings on interest rates.A risein interest rates should increase the supply of domestic savings and screen out inefficientinvestments that had previously been artificially promoted.Although there were someconcerns that a rise in interest rates might not lead to the expected increase in growth rates(because of its negative effect on the cost of capital and on the level of effective demand),the macroeconomic case for domestic financial liberalization was, and still is, generallyaccepted.Even critics of external financial liberalization such as Rodrik and Subrama-nian (2008) see special benefits in domestic financial liberalization that avoid the costsof external liberalization.For example, domestic financial liberalization, unlike externalliberalization, tends to lower the exchange rate, because the increase in domestic savingreduces the need to rely on foreign borrowing.Such an exchange rate outcome is favour-able to the growth of the tradeables sector, the main potential engine of growth.Domestic financial liberalization and development are also essential if countries are totake advantage of their integration into the world economy [ Pobierz caÅ‚ość w formacie PDF ]