International Capital Mobility: What Do Saving-Investment Correlations Tell Us?

The finding that countries' investment rates are highly correlated with their national saving rates has been confirmed by many studies. Our interpretation of the saving-investment evidence is that the hypothesis of a high degree of substitutability for claims on physical capital located in different countries is not supported by the data. High international substitutability for bonds would imply the same for physical capital if capital were perfectly substitutable for bonds within each country, but there is no more reason for this assumption to hold than for the assumption that all goods are perfect substitutes.