This paper examines the relationship between saving and investment on a regional level to measure the extent of capital mobility across regions. It finds that the relationship between total regional saving and investment is significantly negative in Canada and the United Kingdom; this finding contrasts with the significant positive relationship obtained from a similar analysis across countries.
The difference, attributed to subsidies given by national governments to poor regions, is demonstrated by a strong negative relationship between government saving and investment across regions in contrast to the positive relationship between private saving and investment for the United Kingdom and an insignificant relationship elsewhere. When private saving is broken up into personal saving and corporate saving, a positive relationship is found between corporate saving and private investment, indicative of corporate liquidity effects. Personal saving, on the other hand, is unrelated to investment, thereby indicating capital mobility.
A test for the presence of regional liquidity constraints is developed by ascertaining whether movements in investment are more closely associated with movements in retained earnings in peripheral regions than in central regions. The results suggest no difference in liquidity constraints between central and peripheral regions.