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Country portfolios and the Solow-model

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  • Volker Reinthaler

Abstract

This paper shows that an open economy Solow model provides a good description of international investment positions in industrialized countries. More than half of the variation of net foreign assets in the 1990's can be attributed to cross country differences in the savings rate, population and productivity growth. Furthermore, these factors seem to be an important channel through which output and wealth affect international investment positions. We interpret this funding as evidence that decreasing returns are an important source of international capital movements. The savings rate (and population growth) influence the composition of country portfolios through their downward (upward) pressure on the marginal productivity of capital.

Suggested Citation

  • Volker Reinthaler, 2005. "Country portfolios and the Solow-model," Economics Working Papers 904, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:904
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    References listed on IDEAS

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    1. Aart Kraay & Norman Loayza & Luis Servén & Jaume Ventura, 2005. "Country Portfolios," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 914-945, June.
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    More about this item

    Keywords

    International investments; savings rate; productivity growth;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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