Saving , Investment and the Net Foreign Asset Position ∗

This paper investigates the shortand long-run relationship between domestic wealth, capital stock and the net foreign asset position of industrialised and developing countries. Using cointegration techniques, a link between output per capita, the stock of public debt and age distribution on saving, investment and hence, the net external wealth of countries is established. Public debt, GDP per capita and demographic factors are able to explain the long-run saving rate in developing countries while GDP per capita is an important factor in determining the rate of investment in developing and industrial countries. In the short-run, mainly public debt and domestic output per capita drive changes in saving and investment. Demographic factors also explain short-run movements in industrial countries saving and investment rate. In the long-run, the three variables influence the net foreign asset position of developed countries via investment while the opposite is true for developing countries. However, in the short-run both, saving and investment, appear to be equally affected by output per capita, public debt and demographic factors. JEL Classification: C23, F41, G15