The impact of financial globalization on income distribution: The Turkish case

Turkey liberalized its capital accounts in 1989, taking an important step towards integrating its economy with the global economic system and has also undergone significant financial sector reforms since then. Turkish economy, as a result of over-dependence on short-term capital flows and speculative attacks experienced recurrent financial crises in the post-capital account liberalization era with costly consequences for the real economy; leading to slow growth and a more regressive income distributional profile. This paper analyses the dynamic causal relationship between financial liberalization and income inequality in Turkey during the period 1989.I to 2010.IV. The results indicate that the progress of financial liberalization tends to deteriorate the situation of income inequalities and that there exists a robust long-run relationship between financial liberalization and income inequality in Turkey.
Keywords: Financial liberalization, income inequality