Can the cross-border flow of capital lead to political tension?

Yes, the cross-border flow of capital can indeed lead to political tension.

The globalised economy has made it easier for capital to flow across borders. However, this can lead to political tension in several ways. Firstly, the cross-border flow of capital can exacerbate economic disparities between countries, leading to political tension. For instance, if capital flows from developed to developing countries in the form of foreign direct investment (FDI), it can lead to economic growth in the latter. However, if the benefits of this growth are not evenly distributed, it can lead to social unrest and political tension.

Secondly, the cross-border flow of capital can also lead to political tension due to issues of sovereignty. When foreign investors gain significant control over a country's resources or industries, it can lead to concerns about national sovereignty and autonomy. This can be particularly contentious if the foreign investor is a multinational corporation or a country with which the host country has a fraught political relationship.

Thirdly, the cross-border flow of capital can lead to political tension due to its potential to exacerbate economic instability. For example, if a country is heavily reliant on foreign capital, it may be vulnerable to sudden capital outflows, which can lead to economic crises. These crises can, in turn, lead to political instability and tension.

Lastly, the cross-border flow of capital can lead to political tension due to issues of regulation and taxation. For instance, if capital flows to countries with lower tax rates or laxer regulations, it can lead to a 'race to the bottom', where countries compete to offer the most favourable conditions to attract foreign capital. This can lead to political tension both within countries, as governments grapple with the trade-off between attracting foreign capital and protecting domestic interests, and between countries, as they compete for foreign capital.

In conclusion, while the cross-border flow of capital can bring economic benefits, it can also lead to political tension due to economic disparities, issues of sovereignty, economic instability, and regulatory competition. Therefore, managing the cross-border flow of capital is a complex task that requires careful political and economic management.