Abstract:

This paper examines the degree of capital mobility in ten developing countries of Asia using the intertemporal approach to the current account. To assess Feldstein and Horioka’s claim of limited international capital mobility for a set of developing countries, we model the consumption-smoothing motive of consumers and simulate the path of optimal consumption-smoothing current account for comparison with the consumption-smoothing component of the actual current account. Major findings of this paper are the theoretical model works well for developing countries with relatively smaller sample size, and capital flows have been excessive in six out of ten countries studied