International capital mobility: What do national saving–investment dynamics tell us?

We interpret the relationship between national saving and investment in the long-run as reflecting a solvency constraint, and interpret the ease with which a country can run current account imbalances in the short run, before it has to ultimately reverse the transaction at some future date to satisfy the solvency constraint, as being positively related to the degree of international capital mobility. We apply panel error-correction techniques to data for 20 OECD countries from 1960 to 1999. We find that saving and investment display a long-run cointegration relationship that is consistent with the interpretation that a long-run solvency constraint is binding for each country. Over time, however, deviations from this long-run equilibrium relation have become more persistent, which suggests that capital mobility has increased.