Has International Trade in Saving Improved US Economic Welfare?

Anthony Makin and Paresh Kumar Narayan ()

The Economic Record, 2009, vol. 85, issue s1, pages S2-S9

Abstract: Over the past decade international policy-makers have perceived the current account deficit of the world's largest foreign borrower economy, the United States, as a threat to global economic and financial stability. Yet, by bridging the US domestic saving-investment gap, capital inflow that matched the huge US current account deficit also enabled a faster rate of domestic capital accumulation than home saving alone would have permitted. Consistent with the theory of international capital movements, this study identifies and compares the respective contributions of domestic and foreign saving to US gross domestic product per worker over the two decades prior to the onset of the US banking crisis. By revealing that foreign borrowing contributed significantly to raising US output and hence living standards over this period, it adds a new dimension to the debate about global imbalances. Copyright © 2009 The Economic Society of Australia.

Date: 2009

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