American Economic Review Vol. 83 No. 3 1993
Explaining Saving--Investment Correlations
Abstract
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.
- Volume
- 83
- Issue
- 3
- Pages
- 416-436
- Sources
- bibtex:phds-export.bib