19 due to the relatively large standard errors of the coefficients. I To some extent<sup>the developing country</sup> results may reflect large aid flows to countries with low incomes and/or<sup>underdeveloped statistical</sup> systems, rather than greater private capital flows. Some of the middle income<sup>countries had much</sup> smaller differences between domestic saving and investment, bW **t** his reflects reserve accumulation<sup>and</sup> private capital outflow, as discussed above. For the more highly indebted of<sup>these countries, the stock</sup> of private lending to some developing countries exceeds their GDP (World Bank, World<sup>Debt Tables</sup> 122M*), which is a substantially greater fraction of foreign owned capital than in industrial countries, and which suggests that capital mobility cannot be measured solely by differences<sup>between domestic</sup> savings and investment, as noted above. All this suggests that to some extent<sup>the Feldstein-Horioka</sup> results reflect the similarity of their sample countries and that capital is mobile internationally<sup>in response</sup> to long run differences. in rates of return, even in the face of strong barriers to capital movements<sup>in some</sup> developing countries.

Another critique of the Feldstein-Horioka results develops t ke argument that the closeness of average levels of savings and investment rates says nothing about whether an<sup>exogenous rise in</sup> investment would be easily financed by inflows of capital or be limited by domestic saving.<sup>In this view,</sup> the true test of capital mobility for similar countries is not a comparison of their average<sup>saving and</sup> investment rates over long periods, but of the correlations between changes in saving and<sup>changes in</sup> investment within these periods. There are a number of reasons why changes in investment<sup>and saving</sup> rates could be correlated in the short run -they may arise from private responses to shocks in productivity (Obstfeld) or shifts in world interest rates and terms of trade (Persson and Svensson) or because<sup>fiscal</sup> policy targets the current account (Tobin, Westphal, and Summers) and thus shifts in public<sup>saving offset</sup> shifts in private saving, which appears to be true in the data (Bayoumi). However, one<sup>could expect that</sup> short run changes in savings and investmnent rates are less likely to reflect common underlying factors, than data over long periods. In general, the results of these empirical estimates ( for example, Caprio and Howard (business cycles), Obstfeld (quarterly data)) suggest that the coefficient<sup>between changes in</sup> domestic savings and investment rates is much lower than the averages over long periods,<sup>and generally</sup> significantly less than one but significantly different than zero.36 Interpreted in the spirit<sup>of Feldstein and</sup> Horioka, this result suggests a substantial, if imperfect degree of capital mobility.

Another question revolves around the source of so-called capital immobility. Obstfeld's correlations of the quarterly changes in savings and investment rates are inversely related to country<sup>size -</sup> - only in the case of the U. S. and Japan, the two largest countries in the sample,<sup>are the correlations</sup> close to one, and in the smaller countries the correlations are not significantly different<sup>than zero. This</sup> result supports Harberger's and Murphy's argument, that for the larger countries, the high<sup>correlation</sup> between domestic saving and investment rates partially reflects the impact of changes in their domestic savings and investment on the world interest rate and other international variables. This<sup>view also is</sup> supported by Summer's finding that the estimated coefficient of the investment<sup>rate on the saving rate</sup> drops when small, less-developed countries are included in the sample.

Bayoumi's paper provides further support for this view, on a broader scale. Generally H Jowever, Fielke' results, including non-industrial countries, **are** broadly consistent with Feldstein-Horioka's.

U Feldsteh's regreuions of year to year **changes** in the domestic investment rate on **the** year to year changes in the domestic saving **rate** yield **a** coefficient of 0.863, from which he concludes **that** 'even year to year **increases** in saving<sup>tend to</sup><sup>**be**associated with increases domestic</sup> investment in the **saving** country by **approximately** equal amounts'. However, the standard error of the regression coefficient is 0.04, so strictly qsaking, the asociation **is sgnificantly less** than one to one.