NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

International Capital Mobility in the 1990s

Maurice Obstfeld

NBER Working Paper No. 4534 (Also Reprint No. r2032)
Issued in November 1993
NBER Program(s):   ITI

This paper surveys the performance of international capital markets and the literature on measuring international capital mobility. Three main functions of a globally integrated and efficient world capital market provide focal points for the analysis. First, asset-price arbitrage ensures that people in different countries face identical prices for a given asset. Second, to the extent that the usual market failures allow, people in different countries can pool risks to their lifetime consumption profiles. Third, new saving, regardless of its country of origin, is allocated toward the world's most productive investment opportunities. The paper evaluates the international capital market's performance of these roles by studying data on international interest-rate differences, international consumption correlations, international portfolio diversification, and the relations between national saving and investment rates. The conclusion is that while international capital mobility has increased markedly in the last two decades, international capital movements remain less free than intranational movements, even among the industrial countries.

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Document Object Identifier (DOI): 10.3386/w4534

Published: Peter B. Kenen, ed. Understanding Interdependence: The Macroeconomics of th Princeton, NJ: Princeton University Press, 1995

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