On the international capital ownership pattern at the turn of the twenty-first century

Abstract

This paper studies the trends of current accounts and accompanying capital movements from a growth-theoretic perspective and to predict the credit-debt structure among major industrialized countries (the United States, Japan and West Germany), at the turn of the twenty-first century. The past movements of national saving and investment support the ‘habitat’ view by Feldstein and Horioka that the supply of savings create investment where it is generated. Rapid increases in the United States foreign debt may imply, however, the relevance of the ‘traditional’ view that capital moves so as to equate its rate of returns. The simulation exercises shows that the ratio of external debt to capital stock in the United States will rise to 30–40% over the long run in absence of the recovery of its saving ratio to the historical standard in the 1970s.