This paper examines the effect of capital controls on the response of investment to savings in Pacific Basin countries. A robust finding is that the size of the savings coefficient tends to be smaller (larger) in countries with relatively higher (lower) capital controls. Additionally, relaxation in capital controls for the most part had no discernible impact on the savings- investment relationship in individual country time-series regressions. At least a partial resolution to these puzzles is found in the government policy response: Countries with a relatively high saving-investment correlation tended to have governments that countered widening current account imbalances with fiscal policy; the reverse generally held true for countries with low saving-investment correlation. In fact, for this latter group of countries, financing the government deficit through foreign borrowing was a major factor in loosening the link between national saving and investment.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)