This paper examines the evidence on saving-investment correlations in developing economies to gauge the degree of capital mobility in and out of these economies. An error correction model is used to capture the dynamics of the saving-investment relationship and the current account. A non-stationary current account and low saving-investment correlations provide evidence of capital mobility. The role of official foreign borrowing is explored by adding foreign borrowing to savings and studying the correlations. The analysis shows that for majority of the countries the results for capital mobility do not change even after taking foreign borrowing into account. The role of unrecorded capital flows in India is separately examined in the study. The evidence suggests that unrecorded capital flows do perform arbitrage operations between domestic and foreign financial markets.
