Saving-Investment Associations and Capital Mobility on the Evidence from Japanese Regional Data

Abstract

We will examine the size of the Feldstein and Horioka (1980) "saving-retention coefficient" in a setting of near perfect capital mobility, Japanese regions. We first find that on total regional saving and investment rate data, inclusive of regional government saving and investment, the estimate of the coefficient is negative. This negative relationship in the total rates across Japanese regions appears to arise from the strong negative association in the government saving and investment rates.Second, on private regional investment and saving rate data, the "saving-retention coefficient" is insignificantly different from zero. This is evidence consistent with the Feldstein and Horioka hypothesis that in a financially integrated economy, the coefficient will be close to zero.Finally, we find that countries and regions differ in their saving and investment rate responses to demographics. This different response to demographics may be partly behind the divergence in the "saving-retention coefficient" reported in this paper and those found in cross-country regressions.