International Capital Markets in the 1970s

After the quadrupling in the price of oil, there has been considerable concern that international capital markets might be unable to raise a sufficient level of world savings, or properly distribute world savings, to finance all worthwhile world investment. The report questions this concern. The oil exporting nations have considerably higher savings rates and lower investment rates than the oil importing countries. Thus, the oil income transfer would be expected to reduce real rates of interest and to stimulate the volume of capital entering international markets. Using data from the International Monetary Fund, the report finds support for these predictions. The oil exporting countries became capital exporters, primarily sending their investments to the countries suffering the largest losses of income from the increased price of oil. The report also considers the monetary effects of the oil income transfer, including the behavior of international reserves and the rate of inflation.