By Juan Crestanello
My thesis revisits the relationship between a country’s domestic saving and its investment, a link first explored by Feldstein and Horioka (1980). I show that the once strong relationship between domestic saving and investment waned over time and essentially disappeared in the years before the financial crisis, followed by some reemergence more recently. I find that the countries that opened themselves most to trade saw the greatest decline in the saving-investment relationship. I also present evidence from an instrumental variable strategy that suggests that saving-investment relationship is causal. All told, the evidence in this paper suggests a general decline in the saving-investment relationship indicative of the strong forces of globalization at play and the recent uptick relates to a pull-back of cross-border capital investment following the Great Recession, which is even more severe after the COVID-19 crisis.
Please come chat with me at the Econ Senior Thesis Zoom sessions—Monday, May 25, 1-2pm ET—to learn more or ask any questions about my research or the senior thesis process: https://harvard.zoom.us/j/95544475337.