Abstract
This paper examines the dynamics of capital accumulation in a small open economy where home capital is risky and consumers are risk-averse. It is assumed that the economy participates in perfect international bond markets but that risky home capital is held by domestic residents only. Under these assumptions the rate of investment is no longer independent of the saving rate, and they are positively related. As a result, a rise in savings does not increase foreign investment by the same amount but by less, and in some situations the quantity of foreign assets may even decrease.
| Original language | English |
|---|---|
| Pages (from-to) | 265-279 |
| Number of pages | 15 |
| Journal | Quarterly Journal of Economics |
| Volume | 102 |
| Issue number | 2 |
| DOIs | |
| State | Published - 1 May 1987 |
Keywords
- Capital accumulation ; Capital ; Accumulation ; Assets ; Bonds ; Business & Economics ; Capital depreciation ; Capital formation ; Capital investments ; Capital markets ; Capital movement ; Consumers ; Economic models ; Economic theory ; Economics ; Financial investments ; Foreign assets ; Foreign investment ; Gleichgewichtstheorie ; Investition ; Investments ; Mathematical models ; Mobility ; Return on capital ; Risk aversion ; Savings ; Social Sciences ; Sparen ; Steady state economies ; Uncertainty
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