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National Saving-Investment Dynamics and International Capital Mobility

Author

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  • Florian Pelgrin
  • Sebastian Schich

Abstract

The authors analyze the dynamics of national saving-investment relationships to determine the degree of international capital mobility. Following Coakley and Kulasi (1997), the authors interpret the close relationship between national saving and investment in the long run as reflecting a solvency constraint, rather than as evidence of limited capital mobility (Feldstein and Horioka 1980). As in Jansen (1996, 1998), the authors also examine the short-term saving-investment relationship, especially the speed at which the variables return to the long-run equilibrium relationship once they have deviated from it. The ease with which a country can borrow or lend and run current account imbalances in the short run, before it has to ultimately reverse the transaction at some future date to satisfy the solvency constraint, is interpreted as being positively related to the degree of international capital mobility. Extending the approach by Jansen, the authors apply panel error-correction techniques to data for 20 OECD countries from 1960 to 1999, and find that saving and investment display a long-run relationship that is consistent with the interpretation that a long-run solvency constraint is binding for each country. Furthermore, capital mobility has increased over time.

Suggested Citation

  • Florian Pelgrin & Sebastian Schich, 2004. "National Saving-Investment Dynamics and International Capital Mobility," Staff Working Papers 04-14, Bank of Canada.
  • Handle: RePEc:bca:bocawp:04-14
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    References listed on IDEAS

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    Cited by:

    1. Herwartz, H. & Xu, F., 2010. "A functional coefficient model view of the Feldstein-Horioka puzzle," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 37-54, February.
    2. Ricardo Bebczuk & Klaus Schmidt-Hebbel, 2010. "Revisiting the Feldstein-Horioka Puzzle: An institutional sector view," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, pages 69-104.
    3. Ricardo Bebczuk & Lorena Garegnani, 2007. "Corporate Self-Financing and Economic Growth," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, pages 63-91.
    4. Ricardo Bebczuk & Klaus Schmidt-Hebbel, 2007. "The Feldstein-Horioka Paradox: A New Perspective from the Institutional Sector Level," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, pages 103-136.
    5. Jean Fouré & Agnès Bénassy-Quéré & Lionel Fontagné, 2012. "The Great Shift: Macroeconomic projections for the world economy at the 2050 horizon," Working Papers 2012-03, CEPII research center.
    6. Helmut Herwartz & Fang Xu, 2009. "Panel data model comparison for empirical saving-investment relations," Applied Economics Letters, Taylor & Francis Journals, vol. 16(8), pages 803-807.
    7. Gaulier, Guillaume & Milet, Emmanuel & Mirza, Daniel, 2010. "Les firmes françaises dans le commerce de services," CEPREMAP Working Papers (Docweb) 1008, CEPREMAP.
    8. Ricardo Bebczuk & Klaus Schmidt-Hebbel, 2007. "The Feldstein-Horioka Paradox: A New Perspective from the Institutional Sector Level," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, pages 103-136.
    9. Kumar, Saten, 2015. "Regional integration, capital mobility and financial intermediation revisited: Application of general to specific method in panel data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 1-17.

    More about this item

    Keywords

    International topics;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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