INTERTEMPORAL APPROACH TO THE BALANCE OF PAYMENTS: RELATIONSHIP BETWEEN SAVINGS AND INVESTMENTS IN THE RICH, POOR AND TRANSITION COUNTRIES
Josef C. Brada
The paper analyses the intertemporal approach to the balance of payments which is based on the intertemporal approach to the relation between domestic saving and investment. A key element of the presented analysis is whether world capital mobility is high enough to hold a condition that the relation between the domestic saving and investment in a country could vary. The paper contributes to this economic theory by the empirical analysis carried out with a large sample of countries as well as by the analysis of saving and investment distinguishing the set of developed, poor, and transition countries. The paper defines and empirical verifies macroeconomic relationships among saving, investment, the balance of trade and services, and the current account of the balance of payments. The authors define their own hypothesis of the relation among domestic saving, investment, and world capital mobility, which is based on the level of economic development of a country. The results of the analysis are discussed within the context of how to conduct monetary and fiscal policies, as well as within the fundamental equilibrium exchange rate theory.
world capital mobility, transition countries, saving, investment, intertemporal approach, balance of payments
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