CEPR Working Paper: Why Does Capital Flow from Equal to Unequal Countries?

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

Date:
January 2021

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.


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