Why Does Capital Flow from Equal to Unequal Countries?

Sergio de Ferra, Federica Romei and Kurt Mitman

No 15647, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Capital flows from equal to unequal countries. We document this empirical regularity in a large sample of advanced economies. The capital flows are largely driven by private savings. We propose a theory that can rationalize these findings: more unequal countries endogenously develop deeper financial markets. Households in unequal counties, in turn, borrow more, driving the observed direction of capital flows.

Keywords: Inequality; Current account; Capital flows (search for similar items in EconPapers)
JEL-codes: E21 F32 F41 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-cwa, nep-fdg, nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (10)

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