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Savings Promotion, Investment Promotion, and International Competitiveness


  • Lawrence H. Goulder
  • Barry Eichengreen


In an open economy, savings- and investment-promoting policies may have very different effects on the capital account and on the viability of export-oriented and import-competing industries. The nature of the effects is often ambiguous in analytical models. This paper employs a simulation model that combines a detailed treatment of industry interactions, attention to adjustment dynamics, and an integrated treatment of current and capital account transactions to investigate these effects in both the short and long run. We focus on the different effects of savings- and investment-promoting U.S. tax policies on the viability of U.S. export industries. We compare results under the assumption of no international capital mobility (and no international asset transactions) with those under the assumption of full international mobility (which assumes no barriers to or costs of such transactions). Within the case of capital mobility, we consider the importance of the degree of international asset substitutability -- the extent to which individuals respond to differences in anticipated rates of return by altering their portfolios. Simulation results show that the impacts on export industries differ fundamentally depending on the degree of international capital mobility. In the absence of such mobility, savings- and investment- promoting policies have similar effects on U.S. export industries, with insubstantial effects in the short run and larger. beneficial long-run effects that reflect increases in the productiveness of the U.S. economy. Once international capital mobility is accounted for, however, the effects of the two policies differ from one another in both the short and long run. Subsidizing saving helps U.S. export industries initially but hurts them over the longer term. The reverse is true for a policy that subsidizes investment. These differences, which are robust across a range of model specifications and parameter assumptions, stem from the very different implications of the two types of policies for the capital account of the balance of payments.

Suggested Citation

  • Lawrence H. Goulder & Barry Eichengreen, 1988. "Savings Promotion, Investment Promotion, and International Competitiveness," NBER Working Papers 2635, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2635
    Note: ITI PE IFM

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    References listed on IDEAS

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    Cited by:

    1. Warwick J McKibbin & Robert Shackleton & Peter J Wilcoxen, 1998. "The Potential Effects of International Carbon Emissions Permit Trading," Departmental Working Papers 1998-09, The Australian National University, Arndt-Corden Department of Economics.
    2. Bruce F. Parsell & Alan A. Powell & Peter J. Wilcoxen, 1989. "The Reconciliation of Computable General Equilibrium and Macroeconomic Modelling: Grounds for Hope?," Centre of Policy Studies/IMPACT Centre Working Papers ip-44, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Barry Eichengreen & Lawrence H. Goulder, 1991. "The Impact of Permanent and Temporary Import Surcharges on the U.S. Trade Deficit," NBER Chapters,in: Empirical Studies of Commercial Policy, pages 245-286 National Bureau of Economic Research, Inc.
    4. Warwick J. McKibbin & Martin T. Ross & Robert Shackleton & Peter J. Wilcoxen, 1999. "Emissions Trading, Capital Flows and the Kyoto Protocol," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 287-333.
    5. Bettendorf, Leon, 1998. "Investment-Promoting Policies in the Presence of International Interactions," Journal of Policy Modeling, Elsevier, vol. 20(6), pages 715-740, December.
    6. Joaquim Oliveira Martins & Dominique Plihon, 1990. "L'impact des transferts internationaux d'épargne sur les déséquilibres extérieurs," Économie et Statistique, Programme National Persée, vol. 232(1), pages 33-48.
    7. Keuschnigg, Christian & Kohler, Wilhelm, 1996. "Commercial policy and dynamic adjustment under monopolistic competition," Journal of International Economics, Elsevier, vol. 40(3-4), pages 373-409, May.
    8. Warwick J. McKibbin & Peter J. Wilcoxen, 1999. "Permit Trading Under the Kyoto Protocol and Beyond," Economics and Environment Network Working Papers 9902, Australian National University, Economics and Environment Network.
    9. van de Klundert, Theo, 1993. "Crowding out of private and public capital accumulation in an international context," Economic Modelling, Elsevier, vol. 10(3), pages 273-284, July.
    10. McKibbin, Warwick J. & Shackleton, Robert & Wilcoxen, Peter J., 1999. "What to expect from an international system of tradable permits for carbon emissions," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 319-346, August.
    11. Devarajan, Shantayanan & Go, Delfin S., 1998. "The Simplest Dynamic General-Equilibrium Model of an Open Economy," Journal of Policy Modeling, Elsevier, vol. 20(6), pages 677-714, December.
    12. Lawrence H. Goulder & Barry Eichengreen, 1992. "Trade Liberalization in General Equilibrium: Intertemporal and Inter-industry Effects," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 253-280, May.
    13. Hübler, Michael, 2009. "Energy saving technology diffusion via FDI and trade: a CGE model of China," Kiel Working Papers 1479, Kiel Institute for the World Economy (IfW).
    14. Warwick J. McKibbin & Robert Shackleton & Peter J. Wilcoxen, 1998. "The Potential Effects of International Carbon Emissions Permit Trading Under the Kyoto Protocol," Economics and Environment Network Working Papers 9805, Australian National University, Economics and Environment Network.
    15. van de Klundert, T.C.M.J., 1990. "Crowding out and the wealth of nations," Discussion Paper 1990-29, Tilburg University, Center for Economic Research.
    16. Lemelin, André & Robichaud, Véronique & Decaluwé, Bernard, 2013. "Endogenous current account balances in a world CGE model with international financial assets," Economic Modelling, Elsevier, vol. 32(C), pages 146-160.

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