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Saving and Investment in an Open Economy with Non-traded Goods

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  • Engel, Charles
  • Kletzer, Kenneth

Abstract

The authors examine a model of a small, open economy in which there is free international mobility of financial capital, investment in capital goods, and a nontraded good. Such an environment is rich enough to explain several phenomena that are inexplicable in other models. The authors explain why a high saving country may nonetheless borrow from abroad to finance investment. They suggest an explanation of why saving and investment may be correlated even with no restrictions on trade in assets. The authors also provide an optimizing model of stages in the balance of payments. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Engel, Charles & Kletzer, Kenneth, 1989. "Saving and Investment in an Open Economy with Non-traded Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 735-752, November.
  • Handle: RePEc:ier:iecrev:v:30:y:1989:i:4:p:735-52
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