, in a highly influential paper, report empirical evidence suggesting that capital is quite immobile internationally. Many other papers since then demonstrate the robustness of this result.1 In general, these papers find that additional savings in a country lead almost dollar for dollar to extra investment in the country. If an economy were small and open, these funds should instead have been invested throughout the world, leading to only minor changes in domestic investment. In addition, there is strong evidence of real interest rate differentials across countries,2 again suggesting important barriers to capital mobility.
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Gordon et al. (1994) studied this question.