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Capital Flow Surges and Rising Income Inequality

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Listed:
  • Renuka Diwan
  • Zheng Liu
  • Mark M. Spiegel

Abstract

Surges of foreign investment into developing countries can amplify economic stress and potentially undermine their financial stability. New evidence suggests that excessive foreign capital inflows can also increase income inequality in emerging economies. Research shows that, as low global interest rates trigger more investment, those inflow surges benefit entrepreneurs by raising their returns, while lowering household earnings on bank deposits within the countries. The potential impact on income inequality provides another reason beyond financial stability for resisting abrupt surges in capital inflows.

Suggested Citation

  • Renuka Diwan & Zheng Liu & Mark M. Spiegel, 2021. "Capital Flow Surges and Rising Income Inequality," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2021(09), pages 01-05, March.
    • Handle: RePEc:fip:fedfel:90521
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    References listed on IDEAS

    as
    1. Jonathan David Ostry & Atish R. Ghosh & Karl F Habermeier & Marcos d Chamon & Mahvash S Qureshi & Dennis B. S. Reinhardt, 2010. "Capital Inflows; The Role of Controls," IMF Staff Position Notes 2010/04, International Monetary Fund.
    2. Zheng Liu & Mark M. Spiegel & Jingyi Zhang, 2020. "Capital Controls and Income Inequality," Working Paper Series 2020-14, Federal Reserve Bank of San Francisco.
    3. Mr. Marcos d Chamon & Miss Mahvash S Qureshi & Dennis B. S. Reinhardt & Mr. Atish R. Ghosh & Mr. Karl F Habermeier & Mr. Jonathan David Ostry, 2010. "Capital Inflows: The Role of Controls," IMF Staff Position Notes 2010/004, International Monetary Fund.
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