Financial openness, capital mobility, saving and investment correlations: The case of Brics countries

This study analyzes the effects of financial openness, monetary freedom, foreign aid, government expenditures and bank loans provided for the private sector on investment rates to assess the degree of capital mobility of the BRICS (Brazil, Russia, India, China and South Africa) over the period 1990- 2011 by employing dynamic panel data analysis (GMM) developed by Arellano and Bond (1991). Findings suggest that the financial openness increases the national investment rates notably and the estimated saving retention coefficient indicates that capital is mobile in the BRICS. The results indicated that BRICS are open to the cross-border capital flows and have open financial policies; that financial openness, government expenditures and monetary freedom variables increase capital mobility significantly and that there is a statistically significant positive relationship between investment rates and the ratio to the GDP of the volume of bank credits extended to private sector. This implies that credit expansion, cet.par., tends to investment rates. The results reached are in line with the previous findings in the Feldstein and Horioka (1980) literature.