Saving and Investment in an Open Economy with Non-Traded Goods
Working Paper 2141
DOI 10.3386/w2141
Issue Date
We examine a model of a small open economy in which there is free international mobility of financial capital, investment in capital goods and a non-traded good. Such an environment is rich enough to explain several phenomena that are inexplicable in more barren models. We suggest an explanation of why saving and investment may be correlated even with no restrictions on trade in assets. We explain why a high saving country may nonetheless borrow from abroad to finance investment. We also provide an optimizing model of stages in the balance of payments.
Published Versions
International Economic Review, Volume 30, November 1989, pp. 735-752 citation courtesy of