2021

Why I Study ... The Effects of International Finance on Poverty and Inequality Reduction

Assistant Professor of Economics and Finance Lufei Teng explains how she became interested in her area of research.

By: Lufei Teng, as told to Meghan Kita  Wednesday, November 17, 2021 08:46 AM

Assistant Professor of Economics and Finance Lufei Teng teaches in October 2018. Photo by Matt Lester

I was born in the 1980s in China. I still remember the financial struggles that I saw everywhere during my childhood. Nearly 90 percent of the population was living in extreme poverty. At that time, I couldn’t even imagine traveling to a different province, not to mention studying abroad. That extreme poverty number was reduced to nearly zero by last year, after years of economic development. Millions of people have been lifted above the poverty line in the last four decades. 

I have personally experienced great changes: In college, my parents told me they could financially support me to study abroad to pursue higher degrees. This opportunity has taken me to where I am today, and I am extremely grateful for how poverty reduction efforts can change an individual’s life. 

In grad school, I met a professor whose research interest was the effectiveness of foreign aid on economic development in underdeveloped countries, and he later became my dissertation committee chair. I started to explore if foreign aid can pave the way for further private investment flowing into those underdeveloped countries. My assumption was that foreign aid was always helpful. However, I found that it depends on the institutional conditions and economic development levels of a country. Foreign aid can help improve the health-care system, the infrastructure, the education system—and that can create a better environment for foreign private investment. On the other hand, foreign aid can be used to feed local corruption.

My other research interest is in economic inequality. In my current research, I’m looking at the effects of monetary policies on income inequality here in the United States. Last year, we had a recession caused by COVID-19, and our central bank printed out a lot of money. The short-term interest rate was lowered to nearly zero. What’s interesting was, the unemployment rate was very high, but financial assets like housing prices or stock prices were doing great. This mismatch between the fundamental economy and asset prices could enlarge the income gap that has already existed. I’m trying to find a connection between these policies and the inequality.