Trade openness and saving-investment correlations

This paper examines the dynamics of saving-investment relationship in a group of industrialized countries over the last three decades using a random coefficients error correction model. The model is also used to empirically test whether countries that are more open in terms of trade policy are also more open in terms of capital flows, that is, whether the degree of capital mobility is positively related to openness. Our results support the existence of a short run as well as long run relationship between saving and investment in individual countries, and also the long term relationship appears to be stronger for the more open economies. On the other hand, the results do not suggest that more open economies are also ones with greater capital mobility.