Foreign Direct Investment and Financial Development in Estimating International Capital Mobility

Abstract

This paper investigates saving-investment relationships and the degree of international capital mobility, taking into account foreign direct investment, economic openness and the role of domestic financial development. Data on 23 OECD and 30 African countries were analyzed using recent panel technique estimators of fixed effects and random effects models for each country group. Our results show low saving-retention coefficients for both developed and developing countries, but relatively more so for the latter. The findings confirm the view that capital mobility has increased worldwide, especially in developing countries. Of special interest, is that these results are more pronounced when foreign direct investment is excluded from domestic investment.