A note on foreign investment,the savings function and immiserization of national welfare

With the help of a simple two-country version of the Solow steady-state model, the present note shows that even without the presence of any visible market distortion, free mobility of capital is not necessarily beneficial for the capital-importing country. Under a set of very plausible and empirically relevant assumptions about savings behavior, this note shows that while perfect mobility will lead to higher long-run capital stock, income and consumption for the capital-exporting country, it leads to exactly the opposite outcome for the capital-importing country. It brings about lower (per capita) capital stock, income and consumption for the capital-importing country.