Inequality, autocracy, and sovereign funds as determinants of foreign portfolio equity flows

Abstract We identify new country characteristics that influence cross‐border equity flows: income inequality, autocracy, and sovereign wealth funds. Using 149 source countries and 34 Organisation for Economic Co‐operation and Development (OECD) host countries for 2002–2013, we find that OECD host countries receive higher foreign portfolio investment (FPI) inflows from source countries with high income inequality and source countries with a sovereign wealth fund, but lower inflows from autocratic source countries. We argue that concentrated wealth in a society, overseas investments for the benefit of future generations, and political regimes influence FPI. These variables have been understudied though they provide valuable indicators for policy makers and investors. We supplement our core analysis with realistic interactions between these new variables and with the increasing importance of tax havens. Our results hold throughout a variety of robustness checks.