Saving-investment correlations and capital mobility: The experience of developing countries

This paper estimates saving and investment correlations for 58 developing countries in order to assess the degree of capital mobility in the Feldstein-Horioka sense for these countries. Using a new estimation technique, fully modified ordinary least squares, that simultaneously corrects for serial correlation, endogeneity, and sample bias (asymptotically), the study finds that many developing countries are financially integrated in the long run. Moreover, the estimation results do show that saving-investment correlations for middle-income countries tend to be lower than those for low-income countries.