Firms play an important role in shaping income inequality at the aggregated country level, given that wages represent a significant proportion of household income. We investigate the distributional consequences of capital account liberalization, relying on firm level data to explore the implications for betweenfirms earning inequality in ASEAN5 countries over the period 1995-2019. We find that between-firms wage dispersion alone, accounts for a nontrivial proportion of the variation in the market Gini. Our empirical findings show that capital account liberalization increases between-firms wage inequality, as wages grow faster at initially high-paying firms and slow-down at firms at the lower portion of the wage distribution. These results are robust to a battery of robustness checks. Further, the directions and categories of capital account liberalization matter as results are pronounced for inflow liberalization and equity capital flows. We also show that capital account liberalization induces an increase in Profit-to-Wage ratios. Furthermore, the impact depends on country characteristics (wage setting institutions, the level of financial development and the size of the informal sector) as well as industry characteristics (export orientation and external finance dependence).

This paper examines the distributional impact of capital account liberalization. Using panel data for 149 countries from 1970 to 2010, we find that, on average, capital account liberalization reforms increase inequality and reduce the labor share of income in the short and medium term. We also find that the level of financial development and the occurrence of crises play a key role in shaping the response of inequality to capital account liberalization reforms.

We provide new firm-level evidence on the effects of capital account liberalization. Based on corporate foreign-currency credit ratings data and a novel capital account restrictions index, we find that capital controls can substantially limit access to, and raise the cost of, foreign currency debt, especially for firms without foreign currency revenues. As an identification strategy, we exploit, via a difference-in-difference approach, within-country variation in firms' access to foreign currency, measured by whether or not a firm belongs to the nontradables sector. Nontradables firms benefit substantially more from capital account liberalization than others, a finding that is robust to a broad range of alternative specifications.

The opening of capital account of an economy allows the financially constrained local firms to attract and raise cost efficient capital from abroad in one hand and on the other hand allows the well performing and financially solvent local firms to go out other countries and avail 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 a higher income inequality between the skilled and unskilled labor classes. To present some pieces of 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 the capital account liberalization (CAL) would increase the incomes more of skilled labor working in the industries than the unskilled labor.

The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group's bargaining power is more effective.

How does capital account liberalization impact on firm employment? Using a firm level panel data set that covers over 60 countries between 1982 and 2014, we find a statistically significant effect of capital account liberalization on firm employment. The magnitude of the impact is economically significant. The casual effect is identified through a generalized triple differences identification strategy. We also show that there are substantial heterogeneous effects across countries and firms. The effect is more pronounced for firms in industries that depend more on external finance while weaker for firms in countries with stronger employment protection legislation. Financially constrained firms and younger firms respond more positively to liberalization. Overall, our firm-level evidence from around the world adds support to the benefits of globalization.

This dissertation addresses questions relating to the real economic impact of international financial flows and integration on emerging market economies. Chapter 1 studies emerging markets' corporate liquidity policies in response to financial constraints and uncertainty in global capital markets. I develop a simple model that shows the importance of these two factors in motivating emerging market firms to accumulate internal funds in the form of cash. Using firm and issuance-level data, I find evidence consistent with this hypothesis. I consider the context of these economies' widespread capital flow booms and busts surrounding the global financial crisis of 2008-09. More constrained firms held more cash on average, but they had weaker ability to accumulate cash during the post-crisis period. Furthermore, I show that cash improved foreign-financing-constrained firms' resilience, as those that held more cash prior to the crisis maintained higher levels of investment after the crisis started. Lastly, firms in countries with higher capital flows volatility during the postcrisis period accumulated more cash. This paper highlights a previously-ignored dimension in international economic policy: corporate internal funds impact the vulnerability of firms to capital-flows-generated supply shocks. Chapter 2 investigates the effects of capital account liberalization on wage inequality in emerging markets. I first develop a two-country general equilibrium model, which predicts that wages would rise across all sectors after an emerging market liberalizes its capital account. However, due to sector-level differences in marginal labor productivity, wages increase more in the sector with higher skill intensity. I then use industry-level panel data across sixty-eight emerging markets to evaluate this model. Consistent with the predictions of the model, financial liberalization boosts real wages across all sectors but this increase is disproportionately higher for more skill-intensive sectors, suggesting a rise in wage inequality. Chapter 3 examines the effects of surges and stops in gross capital inflows on emerging market corporate investment at the firm level. While surges and stops do transmit to the real economy in the form of higher and lower physical investment, respectively, this effect is not symmetric. The increase in investment during surge periods is larger in magnitude than the decrease in investment posed by stop episodes. The investment decline during stop episodes is concentrated among financially constrained firms. No such concentrated effect was observed during surge periods. Financial openness affects the magnitude of investment declines during stop episodes but plays no additional role in affecting financially constrained firms, suggesting that the source of emerging market firm financial constraints arises from micro-structural factors. ii.