The Complementarity Between Trade In Goods And Capital Flows: An Empirical Study Of G7 Countries

Abstract

This paper attempts to empirically examine whether trade in goods and assets are complementary. This is tested by assessing whether  countries that are more open in terms of trade policy are also more open in terms of capital flows; that is, whether the degree of capital mobility is positively related to openness. For this purpose, we examine the dynamics of saving-investment relationship in a group of seven most industrialized countries over the 1982-2003 period using a random coefficients error correction model.