Saving and Investment in an Open Economy with Non-traded Goods

Charles Engel and Kenneth Kletzer

International Economic Review, 1989, vol. 30, issue 4, 735-52

Abstract: The authors examine a model of a small, open economy in which there is free international mobility of financial capital, investment in capital goods, and a nontraded good. Such an environment is rich enough to explain several phenomena that are inexplicable in other models. The authors explain why a high saving country may nonetheless borrow from abroad to finance investment. They suggest an explanation of why saving and investment may be correlated even with no restrictions on trade in assets. The authors also provide an optimizing model of stages in the balance of payments. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1989
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Working Paper: Saving and Investment in an Open Economy with Non-Traded Goods (1987)
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