Effects of International Capital Flows on Income Inequality: Bilateral Approach

Radek Dědeček

International Finance, 2025, vol. 28, issue 3, 220-235

Abstract: This paper examines the influence of cross‐border capital flows on income inequality in both origin and recipient countries. Using bilateral flow data and a panel dataset spanning 63 countries from 2005 to 2018, we employ panel regression analysis to investigate the effects of different types of capital. Our findings indicate that FDI inflows reduce income inequality in advanced countries by creating jobs and raising wages in sectors that employ lower‐income individuals. Conversely, in developing countries, FDI often targets capital‐intensive and high‐skilled industries, increasing inequality. Portfolio investments generally increase inequality by driving up asset prices and creating instability, but can decrease inequality in emerging markets by supporting financial inclusion and reducing government financing costs. Specific scenarios, such as investments in tax havens or differences in human capital, show distinct results. Policymakers should regulate international capital flows through financial regulations, progressive taxation and international cooperation to mitigate their impact on income inequality.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/infi.70009

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:intfin:v:28:y:2025:i:3:p:220-235

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1367-0271

Access Statistics for this article

International Finance is currently edited by Benn Steil

More articles in International Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().