On the savings wedge in international capital flows

•Allocation Puzzle is sensitive to exclusion of 6 outliers.•Negative correlation between savings wedge and productivity growth is robust.•In the data, net capital flows are 20 times smaller than in the neo-classical model.•Correlation of savings wedge with productivity growth reflects small size of flows.•Model with exogenous limits on flows accounts for large part of savings wedge.

I explore the determinants of the savings wedge in international capital flows computed in a sample of 68 developing countries in Gourinchas and Jeanne (2013). I show that size (rather than allocation) of net capital flows in the data is the major cause of the negative correlation between the calibrated savings wedge and productivity growth.