Investment-Saving Comovement and Capital Mobility: Evidence from Century Long U.S. Time Series

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Abstract

This paper makes three contributions. First, I construct annual time series of gross domestic investment and national saving in the United States for the 1897-1949 period using historical component series. I compare the qualitative and quantitative properties of the newly constructed series with the properties of four existing alternative series constructed by the Bureau of Economic Analysis, the Commerce Department, Kuznets, and Kendrick. Second, I combine the newly constructed data with the Bureau of Economic Analysis' 1929-1989 period data, and the resulting time series are used to reexamine and document the long-run bivariate relationship between the time series of investment and saving. Third, I also examine the short-run as well as the cyclical relationships between the time series of investment and saving. The results reported in this paper indicate that there is a strong long-run and cyclical relationship between investment and saving, and this relationship seems to be independent of the time period considered. Furthermore, I find that during the postwar period the investment-saving comovement is strong and significant also in the short run. However, this is not true during the prewar period. Quantitatively, I find that the investment-saving relationship is stronger during the postwar period than during the prewar period. Feldstein and his coauthors have argued that the high investment-saving correlation reflects imperfect capital mobility. This view, however, is hard to reconcile with the finding that the correlation increased during a period in which it is largely believed that capital markets have become more open and integrated. I conclude, therefore, that long-term capital mobility tests based on investment-saving correlation analysis are not likely to provide an accurate measure of capital mobility. Journal of Economic Literature Classification Numbers: F21, F32, F41, E21, E22.

Original languageEnglish
Pages (from-to)100-136
Number of pages37
JournalReview of Economic Dynamics
Volume3
Issue number1
DOIs
StatePublished - Jan 2000
Externally publishedYes

Bibliographical note

Funding Information:
This paper makes three contributions. First, I construct annual time series of gross domestic investment and national saving in the United States for the 1897-1949 period using historical component series. I compare the qualitative arid quantitative properties of the newly constructed series with the properties of four existing alternative series constructed by the Bureau of Economic Analysis, the Commerce Department, Kuznets, and Kendrick. Second, I combine the newly constructed data with the Bureau of Economic Analysis’ 1929-1989 period data, and the resulting time series are used to reexamine and document the long-run bivariate relationship between the time series of investment arid saving. Third, I also examine the short-run as well as the cyclical relationships between the time series of investment arid saving. The results reported in this paper indicate that there is a strong long-run and cyclical relationship between investment and saving, arid this relationship seems to be independent of the time period considered. Furthermore, I find that during the postwar period the investment-saving comove-ment is strong arid significant also in the short run. However, this is riot true during the prewar period. Quantitatively, I find that the investment-saving relationship is stronger during the postwar period than during the prewar period. Feldstein arid his coauthors have argued that the high investment-saving correlation reflects ’I thank the Editor Thomas Cooley, an Associate Editor, and two anonymous referees for helpful comments and suggestions. The paper is an extension of the manuscript titled “Investment-Saving Comovement, Capital Mobility, arid Fiscal Policy,” which was presented at the NBER Universities Research Conference on the Macroeconomic Effects of Fiscal Policy. I thank the participants of that conference including Andrew Abel, V. V. Chari, the late Robert Eisner, Robert E. Lucas, Jr., Assaf Razin, and especially the discussants of my paper, Marianne Baxter and Maurice Obstfeld, for valuable comments. I also thank the late Martin J. Bailey, Shomu Banerjee, Tamim Bayoumi, Mark Bergen, Rondo Cameron, Robert Chiririko, Betty Daniel, Robert Dekle, Hashern Dezhbakhsh, Clive Granger, Jinook Jeong, Jack Johnston, David Lilien, Giovanna Mossetti, Andy Young, and several university seminar participants for useful comments arid suggestions. Finally, I thank Zhongrnin Chen and Yongley Wang for research assistance. This research was supported in part by the University Research Committee of Emory University. All errors are mine.

Funding

This paper makes three contributions. First, I construct annual time series of gross domestic investment and national saving in the United States for the 1897-1949 period using historical component series. I compare the qualitative arid quantitative properties of the newly constructed series with the properties of four existing alternative series constructed by the Bureau of Economic Analysis, the Commerce Department, Kuznets, and Kendrick. Second, I combine the newly constructed data with the Bureau of Economic Analysis’ 1929-1989 period data, and the resulting time series are used to reexamine and document the long-run bivariate relationship between the time series of investment arid saving. Third, I also examine the short-run as well as the cyclical relationships between the time series of investment arid saving. The results reported in this paper indicate that there is a strong long-run and cyclical relationship between investment and saving, arid this relationship seems to be independent of the time period considered. Furthermore, I find that during the postwar period the investment-saving comove-ment is strong arid significant also in the short run. However, this is riot true during the prewar period. Quantitatively, I find that the investment-saving relationship is stronger during the postwar period than during the prewar period. Feldstein arid his coauthors have argued that the high investment-saving correlation reflects ’I thank the Editor Thomas Cooley, an Associate Editor, and two anonymous referees for helpful comments and suggestions. The paper is an extension of the manuscript titled “Investment-Saving Comovement, Capital Mobility, arid Fiscal Policy,” which was presented at the NBER Universities Research Conference on the Macroeconomic Effects of Fiscal Policy. I thank the participants of that conference including Andrew Abel, V. V. Chari, the late Robert Eisner, Robert E. Lucas, Jr., Assaf Razin, and especially the discussants of my paper, Marianne Baxter and Maurice Obstfeld, for valuable comments. I also thank the late Martin J. Bailey, Shomu Banerjee, Tamim Bayoumi, Mark Bergen, Rondo Cameron, Robert Chiririko, Betty Daniel, Robert Dekle, Hashern Dezhbakhsh, Clive Granger, Jinook Jeong, Jack Johnston, David Lilien, Giovanna Mossetti, Andy Young, and several university seminar participants for useful comments arid suggestions. Finally, I thank Zhongrnin Chen and Yongley Wang for research assistance. This research was supported in part by the University Research Committee of Emory University. All errors are mine.

FundersFunder number
University Research Committee of Emory University

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