Causality Between Investment and Saving Rates: Inferences for the International Mobility of Capital Among OECD Countries

Abstract

This paper explores the capital mobility issue by inspecting the causal relationship between domestic saving and investment rates in 24 OECD countries. Closed economy macroeconomic models illustrate the need for national saving to equal investment in equilibrium. Thus, the existence of any form of causal relationship between these two series implies that markets are not perfectly open, hence, capital flows are impeded. Therefore, the paper employs two standard techniques for causality testing, the Haugh test and variance decomposition, to determine the causal structure. The results are mixed but quite interesting in light of other recent works in this area. [215]