Saving, Investment and Capital Mobility in Ldcs

We use the Coakley, Kulasi and Smith (1996) current account solvency model to investigate saving and investment in LDCs. This model implies that saving and investment cointegrate with a unit coefficient irrespective of the degree of capital mobility. Our panel and conventional unit root tests indicate that LDC current accounts are stationary. The Feldstein-Horioka cross section regression coefficient for LDCs is lower than the corresponding OECD coefficient indicating different policy responses in these countries rather than higher capital mobility. Finally adjustment toward solvency is slower in LDCs reflecting their vulnerability to external shocks and the impact of financial repression