Are Economic Liberalization and Equality Compatible? Evidence from South Asia

SummaryGlobal studies of liberalization and inequality have produced divergent findings arguably because of highly heterogeneous contexts across countries and regions. This paper focusing on the South Asian experience with more homogeneous contexts finds that liberalization efforts and inequality grew in the region during 1980–03. Data support a mutually reinforcing positive relationship in the region suggesting that liberalization helps increase inequality, which in turn serves as a precondition to liberalize. Because economically unequal countries tend to liberalize more intensely, possibly hurting the poor, a lesson for concerned policymakers is to introduce policies to incrementally advance economic openness.