Sources for financing domestic capital - Is foreign saving a viable option for developing countries?

This paper studies the properties of self-financing ratios - the share of domestic capital that was financed by domestic savings, without relying on external borrowing. On average, 90% of the stock of capital in developing countries is self-financed, and this fraction was stable throughout the 1990s. Greater integration of financial markets throughout the 1990s has not changed the dispersion of self-financing rates. Countries with higher self-financing ratios grew significantly faster than countries with low self-financing ratios. Financial integration may have facilitated diversification of assets and liabilities, but failed to offer new net sources of financing capital in developing countries. (c) 2007 Elsevier Ltd. All rights reserved.