Explaining Saving-Investment Correlations

Marianne Baxter () and Mario Crucini ()

American Economic Review, 1993, vol. 83, issue 3, 416-36

Abstract: National saving and investment rates are highly positively correlated in virtually all countries. This is puzzling, as it apparently implies a low degree of international capital mobility. This paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital. The model is consistent with the fact that saving-investment correlations are larger for larger countries but are still substantial for small countries. Further, the model is consistent with the finding that current-account deficits tend to be associated with investment booms. Copyright 1993 by American Economic Association.

Date: 1993
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Related works:
Working Paper: EXPLAINING SAVING/INVESTMENT CORRELATION (1990)
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