Financial Openness, Democracy, and Redistributive Policy

Dailami, Monsoor

World Bank, Washington, DC

关键词: AGGREGATE DEMAND;    AGRICULTURE;    ASSET MANAGEMENT;    AUTONOMY;    BALANCE OF PAYMENTS;   

DOI  :  10.1596/1813-9450-2372
RP-ID  :  WPS2372

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

The debate about the relationshipbetween democratic forms of government and the free movementof capital across borders dates to the 18th century. It hasregained prominence as capital on a massive scale has becomeincreasingly mobile and as free economies experiencecontinuous pressure from rapidly changing technology, marketintegration, changing consumer preferences, and intensifiedcompetition. These changes imply greater uncertainty aboutcitizens' future income positions, which could promptthem to seek insurance through the marketplace or throughconstitutionally arranged income redistribution. As morecountries move toward democracy, the availability of suchinsurance mechanisms to citizens is key if politicalpressure for capital controls is to be averted and if publicsupport for an open, liberal international financial orderis to be maintained. The author briefly reviews howtoday's international financial system evolved from oneof mostly closed capital accounts immediately after WorldWar II to today's enormous, largely free-flowingmarket. Drawing on insights from the literature on publicchoice and constitutional political economy, the authordevelops an analytical framework for a welfare cost-benefitanalysis of financial openness to international capitalflows. The main welfare benefits of financial opennessderive from greater economic efficiency and increasedopportunities for risk diversification. The welfare costsrelate to the cost of insurance used as a mechanism forcoping with the risks of financial volatility. Theseinsurance costs are the economic losses associated withredistribution, including moral hazard, rent-seeking, andrent-avoidance. A cross-sectional analysis of a large sampleof developed and developing countries shows the positivecorrelation between democracy (as defined by political andcivil liberty) and financial openness. More rigorouseconometric investigation using logit analysis andcontrolling for level of income also shows thatredistributive social policies are key in determining thelikelihood that countries can successfully combine anopenness to international capital mobility with democraticforms of government.