CFCM Seminar: Kurt Mitman (Stockholm University)

Why does capital flow from equal to unequal countries?

Paper (.pdf)

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.