Domestic Saving and International Capital Flows Reconsidered
Domestic Saving and International Capital Flows Reconsidered

Author: Alan M. Taylor

Publisher:

Published: 1994

Total Pages: 48

ISBN-13:

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A long literature since Feldstein and Horioka's seminal contribution documents the strong correlation of domestic saving and investment rates since the 1960s. According to conventional wisdom, the result provides evidence of international capital market imperfections. The macroeconomic theory of small open economies prescribes a relationship between the composition of aggregate demand and its relative price structure, a linkage hitherto ignored in the saving-investment literature. Theory and evidence also suggest a role for growth and demographic effects, well known in previous studies. If one controls for these effects, the standard correlation of saving and investment disappears. International capital markets may be better integrated than once thought, and the former correlations may have been spurious. The pattern of domestic investment rates is better explained by domestic price distortions and other variables than by domestic saving constraints.

Domestic Saving and International Capital Movements in the Long Run and the Short Run
Domestic Saving and International Capital Movements in the Long Run and the Short Run

Author: Martin S. Feldstein

Publisher:

Published: 1982

Total Pages: 39

ISBN-13:

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The evidence and analysis in this paper support the earlier findings of Feldstein and Horioka (1980) that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment. New estimates for the post-OPEC period 1974-79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 OECD countries. An explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long-run response of international capital flows than to their short-run behavior. Coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross-country sample of these averages. A portfolio model of international capital allocation that is presented in the paper indicates that the short-run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response

Capital Flows, Saving, and Investment in the World Economy
Capital Flows, Saving, and Investment in the World Economy

Author: Showkat Ali

Publisher: Taylor & Francis

Published: 1998

Total Pages: 200

ISBN-13: 9780815330738

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This study examines the major macroeconomic determinants and the structural relationships of current account variability, capital flows, saving and investment in open economies that are linked to the international financial markets. It explores the appropriateness of domestic policy responses (such as money stock growth, government spending, openness criteria, GDP growth) and the size of population or the impact of external shocks (such as exchange rate variability and the terms of trade uncertainty) for determining the domestic saving-investment comovement and capital flows worldwide. This analysis finds that even high positive correlations between national saving and investment rates could naturally arise within a perfect capital mobility framework where domestic policy variability and external shocks are likely to play a significant role for capital inflow.

Domestic Savings and International Capital Flows
Domestic Savings and International Capital Flows

Author: Martin S. Feldstein

Publisher: Kingston, Ont. : Institute for Economic Research, Queen's University

Published: 1979

Total Pages: 28

ISBN-13:

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"How internationally mobile is the world's supply of capital? Does capital flow among industrial countries to equalize the yield to investors? Alternatively, does the saving that originates in a country remain 'to be invested there? Or does the truth lie somewhere between these two extremes? The answers to these questions are not only important for understanding the international capital market but are also critical for analyzing a wide range of issues including the nation's optimal rate of saving and the incidence of tax changes"--NBER website.

International Capital Flows when Investors Have Local Information
International Capital Flows when Investors Have Local Information

Author: Joshua D. Coval

Publisher:

Published: 2003

Total Pages: 32

ISBN-13:

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While international capital flows have increased dramatically over the past two decades, from a risk-sharing perspective, world capital markets do not appear highly integrated. Investors continue to hold disproportionately large claims to domestic output, fund domestic investment mostly out of domestic savings, and consume at very different rates than agents residing abroad. In this paper, we investigate investment behavior in a model in which agents have superior information regarding domestic returns than those overseas. We show that such a setting, when calibrated to U.S. macroeconomic data, offers a unified explanation for the three risk-sharing puzzles in an environment of active capital flows. Investors' cross-border trading serves to amplify, rather than dampen, cross-border consumption differences and domestic savings-investment correlations.

International Capital Flows and Domestic Economic Policies
International Capital Flows and Domestic Economic Policies

Author: Jeffrey A. Frankel

Publisher:

Published: 1987

Total Pages: 146

ISBN-13:

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This paper, written for the NBER Conference on the Changing Role of the United States in the World Economy, covers the capital account in the U.S. balance of payments. It first traces the history from 1946 to 1980, a period throughout which Americans were steadily building up a positive net foreign investment position. It subsequently describes the historic swing of the capital account in the 1980s toward massive borrowing from abroad. There are various factors, in addition to expected rates of return, that encourage or discourage international capital flows: transactions costs, government controls, taxes, default and other political risk and exchange risk. But the paper argues that the increase in real interest rates and other expected rates of return in the United States, relative to other countries, in the early 1980s was the major factor that began to attract large net capital inflows. It concludes that a large increase in the U.S. federal budget deficit, which was not offset by increased private saving, was the major factor behind the increase in real interest rates, and therefore behind the switch to borrowing from abroad.