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Journal of Economic Integration 2020 September;35(3) :503-518.
DOI: https://doi.org/10.11130/jei.2020.35.3.503
Savings Wedge, Productivity Growth, and International Capital Flows
Ly Dai Hung 
1Vietnam Central Economic Commission, Hanoi, Vietnam
2Thang Long Institute of Mathematics and Applied Sciences (TIMAS), Hanoi, Vietnam
Corresponding Author: Ly Dai Hung ,Email: hunglydai@gmail.com
Copyright ©2020 Journal of Economic Integration
ABSTRACT
The empirical evidence derived from an analysis of a panel sample of 162 economies for the 1980-2013 period demonstrates that a higher productivity growth rate is associated with greater savings. The savings wedge, a type of financial friction, underlies this correlation.The growth rate has a positive influence on investment.Since net capital inflows represent a gap between domestic investment and savings, their fluctuation over time is driven by the dynamics of productivity growth.The evidence also implies that the neoclassical growth model works on the investment side while the allocation puzzle still applies on the savings side of the net capital inflows equation.

JEL Classification
H20: General
F21: International Investment; Long Term Capital Movements
F41: Open Economy Macroeconomics
Keywords: International Capital Flows | Financial Friction | Productivity Growth | Savings Wedge
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