DP15647 Why Does Capital Flow from Equal to Unequal Countries?
|Author(s):||Sergio de Ferra, Kurt Mitman, Federica Romei|
|Publication Date:||January 2021|
|Keyword(s):||Capital Flows, current account, inequality|
|JEL(s):||E21, F32, F41|
|Programme Areas:||International Macroeconomics and Finance, Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15647|
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.