Capital Account Liberalization (CAL) and Income Inequality : A Panel Data Analysis of 11 Asia-Pacific Countries

The opening of capital account of an economy allows the financially constrained local firms to attract and raise cost-efficient capital from abroad on one hand and on the other hand, allows the well-performing and financially solvent local firms to go out other countries and avail themselves the external economics of scale, low-cost factors of production and explore new markets. Since capital and skilled labor are relative complements, the opening of capital account could result in higher income inequality between the skilled and unskilled labor classes. To present some evidence in this regard, a panel data set with secondary data of 11 Asia-Pacific countries have been analyzed by applying the general panel data analysis techniques and GMM model for both de jure and de facto measures. It has been found that capital account liberalization (CAL) would increase the incomes more of skilled labor working in the industries than unskilled labor