SAVINGS, INVESTMENT AND INTERNATIONAL CAPITAL FLOWS

The high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile. This paper surveys the theory and evidence on the relationship between savings and investment. In a sample of 23 OECD countries a positive correlation between savings and investment rates is found in both the short and long runs, However, a wide variety of models generate such co-movements in savings and investment in response to exogenous disturbances, even under conditions of complete financial markets. Thus, the savings-investment correlation provides little evidence on the question of international capital mobility. © 1991.