Discussion paper

DP15647 Why Does Capital Flow from Equal to Unequal Countries?

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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Citation

de Ferra, S, F Romei and K Mitman (2021), ‘DP15647 Why Does Capital Flow from Equal to Unequal Countries?‘, CEPR Discussion Paper No. 15647. CEPR Press, Paris & London. https://cepr.org/publications/dp15647