TY - JOUR AU - Feldstein,Martin AU - Bacchetta,Philippe TI - National Saving and International Investment JF - National Bureau of Economic Research Working Paper Series VL - No. 3164 PY - 1992 Y2 - January 1992 UR - http://www.nber.org/papers/w3164 L1 - http://www.nber.org/papers/w3164.pdf N1 - Author contact info: Martin S. Feldstein President Emeritus NBER 1050 Massachusetts Avenue Cambridge, MA 02138-5398 Tel: 617/868-3905 Fax: 617/868-7194 E-Mail: msfeldst@nber.org Philippe Bacchetta Faculty of Business and Economics University of Lausanne Extranef CH-1015 Lausanne Switzerland E-Mail: philippe.bacchetta@unil.ch M1 - published as Martin Feldstein, Philippe Bacchetta. "National Saving and International Investment," in B. Douglas Bernheim and John B. Shoven, editors, "National Saving and Economic Performance" University of Chicago Press (1991) M2 - featured in NBER digest on 1990-01-01 AB - This paper extends earlier work by Feldstein and Horioka on the relation between domestic saving rates and international capital flows or, equivalently, between domestic saving rates and domestic investment. The basic conclusion of the present analysis is that an increase in domestic saving has a substantial effect on the level of domestic investment although a smaller effect than would have been observed in the 1960s and 1970s. The savings retention coefficient for the 1980-86 period is 0.79, down from 0.91 in the l960s and 0.86 in the 1970s.
The more closely integrated economies of the EEC also appear to have more outward capital mobility (i.e., a lower saving retention coefficient) than other OECD countries.
There is no support for the view that the estimated saving-investment relation reflects a spurious impact of an omitted economic growth variable.
Although budget deficits are inversely related to the difference between private investment end private saving, we reject the view that this reflects an endogenous response of fiscal policy in favor to the alter-native interpretation that the negative relation is evidence of crowding out of private investment by budget deficits. This interpretation is supported by the evidence that domestic investment responds equally to private saving and to budget deficits.
The implication of the analysis thus supports the original Feldstein-Horioka conclusion that increase in domestic saving does raise a nation's capital stock and therefore the productivity of its workforce. Similarly, a tax on capital income is not likely to be shifted fully to labor and land by the outflow of enough capital to maintain the real rate of return unchanged. ER -