In an open economy, an increase in saving might not cause an increase

In an open economy, an increase in saving might not cause an increase in domestic investment. Why not? Does that mean that an increase in saving is undesirable?

What will be an ideal response?

ANSWER

An increase in saving can affect the domestic real interest rate only by changing the world interest rate. If the world interest rate does not change, domestic investment is not affected. More saving means less consumption, which reduces both imports and domestic demand for domestic output, so exports (and net exports) rise. The increase in saving must correspond to investment somewhere, but not necessarily in the economy where the saving originates. Nonetheless, wealth rises for those who accomplish the higher saving.