Discussion Paper Details

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Title: Why Does Capital Flow from Equal to Unequal Countries?

Author(s): Sergio de Ferra, Kurt Mitman and Federica Romei

Publication Date: January 2021

Keyword(s): Capital Flows, current account and inequality

Programme Area(s): International Macroeconomics and Finance and Monetary Economics and Fluctuations

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.

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Bibliographic Reference

de Ferra, S, Mitman, K and Romei, F. 2021. 'Why Does Capital Flow from Equal to Unequal Countries?'. London, Centre for Economic Policy Research.