Following the trend of financial globalization since the 1980s, more and more tropical economies have embraced financial openness as one of the drivers of economic growth, allowing foreign investments to pour into their countries. While FDI capital flows are often associated with higher economic growth, fickle non-FDI flows are blamed for exposing developing economies to the risk of ‘Sudden Stop’ and economic instability. Financial openness associated with different types of foreign investment is likely to make differential impacts across different income groups within an economy, which has implications for a nation’s income inequality. Since most of the tropical economies are in a relatively early phase of financial openness compared to their developed counterparts, it would be meaningful to investigate the relationship between financial openness and income inequality, allowing for possible nonlinear linkage dependent on stages of financial openness
