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International Saving, Investment and Trade

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  • Debaere, P.
  • Demiroglu, U.

Abstract

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.

Suggested Citation

  • Debaere, P. & Demiroglu, U., 1997. "International Saving, Investment and Trade," Working Papers 406, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:406
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    References listed on IDEAS

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    1. Kotlikoff, Laurence J, 1984. "Taxation and Savings: A Neoclassical Perspective," Journal of Economic Literature, American Economic Association, pages 1576-1629.
    2. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, pages 101-136.
    3. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
    4. Michael Mussa & Morris Goldstein, 1993. "The integration of world capital markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 245-330.
    5. J??r??me Hericourt & Mathilde Maurel, 2000. "The Feldstein-Horioka Puzzle Revisited: An ???European-Regional??? Perspective," William Davidson Institute Working Papers Series wp763, William Davidson Institute at the University of Michigan.
    6. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    7. Jaume Ventura, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 57-84.
    8. 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.
    9. Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
    10. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, pages 1029-1046.
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    Cited by:

    1. João Sousa Andrade, 2006. "Mobilidade do Capital e Sustentabilidade Externa: uma aplicação da tese de F-H a Portugal (1910-2004)," GEMF Working Papers 2006-04, GEMF, Faculty of Economics, University of Coimbra.
    2. João Sousa Andrade, 2007. "La these de Feldstein-Horioka: une mesure de la mobilité internationale du capital," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, pages 53-67.

    More about this item

    Keywords

    INVESTMENTS ; SAVINGS;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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