CAPITAL MOBILITY IN THE WORLD-ECONOMY - AN ALTERNATIVE TEST

This paper proposes a new measure and test of international capital mo bility. In order to investigate capital flows, we utilize a small open economy version of Campbell and Mankiw's [NBER Macroeconomic Annual ( 1989) 185-216] permanent income model. Our capital mobility measure fo cuses on the correlation between the country's consumption and net out put instead of the correlation between domestic saving and domestic in vestment proposed by Feldstein and Horioka [Economic Journal 90 (1980) 314-329]. The model is estimated for 11 OECD countries. The results s uggest that the null hypothesis of perfect capital mobility cannot be rejected for more than a half of these countries. On the other hand, s ome kind of capital mobility constraints are detected for several coun tries including the United States and Japan. (C) 1998 Elsevier Science Ltd. All rights reserved. JEL classifications: E21, E22, F21, F32, F4 1.