TY  - JOUR
AU  - Taylor,Alan M.
TI  - Domestic Saving and International Capital Flows Reconsidered
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4892
PY  - 1994
Y2  - October 1994
UR  - http://www.nber.org/papers/w4892
L1  - http://www.nber.org/papers/w4892.pdf
N1  - Author contact info:
Alan M. Taylor
Department of Economics
University of Virginia
Monroe Hall
Charlottesville, VA 22903
Fax: (434) 982-2904
E-Mail: alan.m.taylor@virginia.edu
AB  - A long literature since Feldstein and Horioka's seminal contribution documents the strong correlation of domestic saving and investment rates since the 1960s.  According to conventional wisdom, the result provides evidence of international capital market imperfections.  The macroeconomic theory of small open economies prescribes a relationship between the composition of aggregate demand and its relative price structure, a linkage hitherto ignored in the saving-investment literature.  Theory and evidence also suggest a role for growth and demographic effects, well known in previous studies. If one controls for these effects, the standard correlation of saving and investment disappears.  International capital markets may be better integrated than once thought, and the former correlations may have been spurious.  The pattern of domestic investment rates is better explained by domestic price distortions and other variables than by domestic saving constraints.
ER  -