International Capital Mobility Amongst the Major Industrialised Countries: Too Little or Too Much?

Abstract

This paper examines capital flows amongst the major industrialised countries with a view to assessing Feldstein and Horioka's claim that international capital mobility is limited. It argues that saving-investment correlation tests are inherently flawed, and propose an alternative methodology for testing the degree of international capital mobility. It finds that capital flows have been excessive, in the sense that they are driven by speculative forces rather than by economic fundamentals.