National saving and investment rates are highly positively correlated in virtually all countries. This is puzzling, as it apparently implies a low degree of international capital mobility. This paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital. The model is consistent with the fact that saving--investment correlations are larger for larger countries but are still substantial for small countries. Further, the model is consistent with the finding that current-account deficits tend to be associated with investment booms.

This paper contributes to the empirical literature that tests the implications of risk sharing across regions or countries. Rather than test the null of full insurance, the estimation method produces a parameter that measures the fraction of the annuity value of individual income that individuals of different regions (or nations) pool. Comparing the provinces of Canada, the states of the United States, and the G-7 countries, I find similar degrees of risk sharing within regions of Canada and the U.S. that exceed the risk sharing that occurs across countries. Specifically, more than two-thirds of the fitted annual variation in regional consumption is common to all regions compared to less than one-third in the case of G-7 countries.

National saving and investment rates are highly positively correlated in virtually all countries. This is puzzling, as it apparently implies a low degree of international capital mobility. This paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital. The model is consistent with the fact that saving-investment correlations are larger for larger countries but are still substantial for small countries. Further, the model is consistent with the finding that current-account deficits tend to be associated with investment booms. Copyright 1993 by American Economic Association.

We study good-by-good deviations from the Law-of-One-Price (LOP) for over 1,800 retail goods and services between all European Union (EU) countries for the years 1975, 1980, 1985, and 1990. We find that for each of these years, after we control for differences in income and value-added tax (VAT) rates, there are roughly as many overpriced goods as there are underpriced goods between any two EU countries. We also find that good-by-good measures of cross-sectional price dispersion are negatively related to the tradeability of the good, and positively related to the share of non-traded inputs required to produce the good. We argue that these observations are consistent with a model in which retail goods are produced by combining a traded input with a non-traded input.