Capital mobility and adjustment of the current account imbalances: a bounds testing approach to cointegration in 12 countries (1880‐2001)

Abstract

AbstractThe saving–investment correlation in the long run may be interpreted as an indicator of the respect of the nation's intertemporal budget constraint. In the context of the single equation method, the existence of such a long‐run relationship implies that the levels of the variables as regressors must be cointegrated. Using the new approach to cointegration developed by Pesaran et al. (2001), the paper attempts to ascertain the existence of a long‐run relationship between the domestic saving and investment rates in industrialized countries over the period 1880–2001 when it is not known if the variables under consideration are stationary in levels or in differences. Inferences are drawn concerning international capital mobility. Copyright © 2004 John Wiley & Sons, Ltd.