Financial liberalization and income inequality: A meta-analysis based on cross-country studies

The proposed income distribution effect of financial liberalization has gradually attracted the attention of academic economists, but the research results are inconsistent and even contradictory. This paper presents a quantitative review of these studies. The objectives are to assess the impact of financial liberalization on income inequality and to identify the sources of heterogeneity. A meta-analysis is performed with 23 empirical cross-country studies on the relationship between financial liberalization and income inequality, yielding a total of 556 estimates. We find overall support for the small negative relationship between financial liberalization and income inequality when considering potential publication bias and method heterogeneity. Our results suggest that different impact channels, institutional quality, the measurement used for financial liberalization and income inequality, and the use of different econometric methods are especially effective for explaining the differences in past study findings.