International Saving, Investment and Trade
Feldstein and Horioka (1980) observed that saving and investment move closely together in the major OECD countries. This finding is a puzzle if national economies are characterized by one sector production functions of the form F(K,L). In that case, in a high saving country, the high rate of investment and capital accumulation would result in a decline of the marginal product of capital, leading to an incentive for exporting capital. In this paper, we show that this incentive disappears in a multi-sector world. National capital can be absorbed domestically without a decline in its marginal product through a shift in the sectoral composition of national production towards capital intensive sectors.
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- Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
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- Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
- Feldstein, Martin & Horioka, Charles, 1980.
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