Using the framework of a dynamic intertemporal optimization model of an open economy, it is shown that the long-run investment-saving correlation follows directly from the economy’s dynamic budget constraint and this does not depend on the degree of international capital mobility. Therefore,...

The traditional assumption of constant factor shares (Bowley’s Law) may be misleading, for factor shares do vary in both the short run and the long run. The present chapter looks at short-run factor share movements, asking how they relate to the business cycle. Theoretical arguments differ...