Saving Retention Coefficient Research Articles

Capital mobility and global factor shocks

This paper focuses on the effects of global factors on the saving–investment relationship. We prove that, if investments and savings are affected by idiosyncratic and global components, they must be cointegrated to obtain reliable estimates of the saving-retention coefficient. When global shocks are taken into account through common factors, we find that the estimated saving-retention coefficient is close to zero for a panel of 21 OECD countries.

SAVING-INVESTMENT NEXUS IN DEVELOPING COUNTRIES: DOES FINANCIAL DEVELOPMENT MATTER?

The Feldstein-Horioka puzzle is re-examined using a sample of 20 sub-Saharan Africa (SSA) countries. Unlike the extant literature we demonstrate the expediency of sustenance of financial sector reforms for the saving-investment nexus in SSA. Findings showed saving retention coefficients similar in magnitude to those already reported for developing countries, particularly SSA. In addition, however, the results uncovered a telling intervening role for financial deepening in the saving-investment space. Going forward, the precise nature and corresponding policy implications of this role should form an integral part of discussions in both academic and policy circles.Keywords: Feldstein-Horioka Coefficient, Panel Mean Reversion, Fixed Effects, Sub Saharan AfricaJEL classification: C23, F21, F36, K11(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONA distinguishing feature of Africa's twenty first century epoch, especially in the wake of the recent global economic cum financial crisis, appears to be the declining trends in traditional sources of investments, especially Official Development Assistance (ODA), foreign direct investment (FDI) as well as remittances, emanating from the developed countries. This evolving investment regime could potentially persist as a result of a number of factors chief among which are binding budget constraints, macroeconomic imbalances and challenges in terms of reaching parliamentary consensus in these African investment supply hubs. The current global economic outlook thus situates Africa in a position of grappling with declining trade flows, a collapse of commodity prices, reduced access to international private financing, falling government revenues, reductions in remittances, and, to some degree, uncertainty about future commitments of official development assistance (Heintz and Ndikumana, 2010). There is no gainsaying the stymieing effects these turn of events could have on the growth trajectories of African economies.The foregoing, both from policy and strategic perspectives, should prod the minds of policymakers within the African continent on intensifying efforts towards better domestic resource mobilization. This should be with a view to ensuring that the investment resources needed for growth can be partly offset from within, particularly amid unfavorable external conditions. Received economic wisdom offers a clear, arguable though, association between saving and investment on one hand and the growth promoting influence of investment on the other. Theoretically, in the absence of capital mobility, domestic investment financing should be largely saving-based, implying between these variables, a correlation metric in the neighbourhood of unity. Thus, under perfect capital mobility, savings should flow to the most attractive investment projects globally. The puzzle, however, was that Feldstein and Horioka (1980), FH hereafter, using data on 16 of the Organisation for Economic Cooperation and Development (OECD) countries over the 1960-1974 period reported the existence of rigidities and preferences which tend to keep saving locked in investments within the country of origin. This was clearly at variance with the intuition of near perfect capital mobility expected among the OECD economies, particularly in such an era characterized by ample push for global capital markets integration.Also, in a parallel but relatively older literature, McKinnon (1973) and Shaw (1973) working independently identified a key role for financial intermediaries in matching funds from surplus to deficit units in the economy during the growth process. Thus, well functioning financial markets ought to minimize the divergence between domestic saving and available investment opportunities. Therefore, the higher the extent of financial sector advancement, the higher is the level of investment that can be financed via an efficient allocation of saving (Bencivega and Smith, 1991; Guiso et al. …

The Feldstein–Horioka puzzle in groupings of OECD members: A panel approach

This paper investigates the relationship between investment and savings in 26 OECD countries and demonstrates that the relationship changes when the countries under consideration in the selected panel vary. Accordingly, panel estimations using annual data for the period from 1970 to 2008 have been made for various groupings of developed countries, specifically the OECD as a whole, the EU15, NAFTA and the G7. Additionally, the paper examines changes in investment savings relationships when the presence of structural shifts in developed countries – where such exist – are taken into account. Recently developed panel techniques are employed to examine the investment savings relationship and estimate saving-retention coefficients. The empirical findings reveal that the Feldstein–Horioka puzzle exists only in the panel of G7 countries, wherein the saving-retention coefficient is estimated as 0.754 and 0.864 (for the full sample of G7 countries and for stable G7 countries, respectively). The estimated saving-retention coefficient for unstable G7 countries is 0.482, which indicates a higher level of capital mobility in unstable countries with respect to stable ones. This conclusion is further supported by the estimations for OECD countries and the EU15.

Capital Mobility in African Countries

It is well known that one of the important aspects of achieving sustainable development is to preserve macroeconomic stability, which is closely related to the extent of capital mobility. Given the importance of the subject for open economies, this paper examines the degree of capital mobility for African countries by using among other methodologies the Feldstein- Horioka coefficients. To determine those coefficients, we use time series data and methods, along with the Dynamic Heterogeneous panel approach. We find significant cross-country heterogeneity in the dynamic of income per capita, investment rate, and saving rate; and conclude that it is invalid to pool data across our sample countries. Furthemore, the empirical findings reveal that for African countries included in the sample, the estimated saving retention coefficients are at the same time, small and high indicating respectively higher and lower degrees of capital mobility and therefore, challenging the results of Feldstein – Horioka on developing countries.

The Feldstein–Horioka Puzzle and structural breaks: Evidence from EU members

The purpose of this paper is to investigate the level of capital mobility in European Union members using the Feldstein–Horioka puzzle proposed by Feldstein and Horioka (1980) in order to investigate relations between saving and investment flows. In this paper, data for 23 European countries were used over the period of 1995–2009 on the quarterly basis. Two different tests were used to estimate the stationarity of the model variables, which are the Ng and Perron (2001) unit root test procedure and approach proposed by Zivot and Andrews (1992) for unit root test allowing for a structural shift. Then the Kejriwal and Perron (2008, 2010) structural break test was applied to determine the presence of structural breaks in series. In most countries except Belgium and Finland UDmax and WDmax tests rejected the hypothesis of no breaks. To test the cointegration relationships between investment and saving flows of European Union members three different cointegration techniques were applied to the data. Firstly, the Johansen (1988) cointegration approach was used for the case of no cointegration shifts, then the Gregory and Hansen (1996) cointegration test was applied, which allows for one structural shift. Finally, again the Johansen' cointegration approach was used; however, this time with the inclusion of dummy variables related to earlier selected structural break locations. The empirical results provided stronger evidence of cointegration between investment and saving variables in the case of structural break accommodation compared to the case where the presence of structural breaks was ignored. The estimated saving retention coefficient in the presence of structural breaks using the Kejriwal and Perron (2008, 2010) approach appeared relatively low in many cases, illustrating by this the openness of estimated countries. In general, world and European countries with time have a tendency to a higher level of their capital market openness. Estimations of a saving retention coefficient in the presence of structural changes do not support the existence of the Feldstein–Horioka Puzzle in the considered EU countries, except Belgium.

Re-examining the saving-investment nexus: threshold cointegration and causality evidence from the ECOWAS

The aim of this paper is to re-examine the relationship between saving and investment in the case of ECOWAS countries. We then employ the Gregory and Hansen (J Econometr 70:99–126, 1996a; Oxford Bull Econ Stat 58:555–560, 1996b) threshold cointegration tests and the Toda and Yamamoto (J Econometr 66:225–250, 1995) causality procedure. Threshold cointegration approach allows estimating changes in the saving-retention coefficients over time. Using yearly data for the period from 1960 to 2007, we show out two groups of countries regarding the cointegration test results. In the first group (The Gambia and Togo), capital is perfectly mobile since there is no long-run relationship between savings and investment. The second group comprised of the ten other ECOWAS countries studied, is characterized by an incomplete capital mobility. Moreover, in the second group the saving-retention coefficient is time-varying in most of the ECOWAS countries (except for Benin and Niger) and is different from a country to another one. The changes in the saving-retention coefficients indicate how international capital mobility has changed. Moreover, the inclusion of trade openness and country size in the saving-investment equation reduces the saving retention coefficients implying improvement of capital mobility over time. Furthermore, investment rates cause saving rates in Benin, Guinea-Bissau and Niger while saving rates cause investment rates in Cote d’Ivoire, Nigeria and Sierra Leone.

The Feldstein-Horioka Puzzle Reconsidered for OECD Countries

This paper investigates the savings-investment relationship, also known as the Feldstein-Horioka puzzle, for a panel of 30 OECD countries over 1960-2006. It utilizes the recently-developed panel cointegration techniques to test and estimate the long-run equilibrium relationship between savings and investment. Investment and savings rates are found to have unit roots and to be cointegrated, based on 5 different panel unit root tests and 3 types of panel cointegration tests. The estimated coefficients on the savings rate employing CCR, DOLS, and FMOLS techniques, exhibit a declining trend over subsample periods. It suggests that international capital mobility in the OECD economies almost quadrupled over 1960-2006 and substantially increased in the 1990s and 2000s. Moreover, the magnitude of the estimated saving-retention coefficients is much smaller than those reported by Feldstein and Horioka, who did not consider the nonstationarity of data and the resulting spurious regression problem. We also find that 21 original OECD members had a much greater increasing trend in capital mobility than 9 developing new members over 1990-2006, presenting evidence against the scale effect of country size. The empirical findings in this paper provide strong evidence against the Feldstein-Horioka puzzle in OECD countries over 1960-2006.

Pooled Mean Group estimation on international capital mobility in African countries

This paper investigates the relationship between the savings and investment rates for 37 African countries over the period 1970–2006, using the recently developed Pooled Mean Group cointegration technique. Our results show that in the long-run, capital was relatively mobile in African countries, while, in the short-run, coefficients are not significant. However, there are marked differences in ratio retentions between country groups. The savings retention coefficient is higher in civil law countries than in common law countries. Furthermore, our results show that the Feldstein–Horioka coefficient is relatively lower in non-CFA than in CFA countries. These results have some policy implications.

A Time‐series Approach to the Feldstein–Horioka Puzzle with Panel Data from the OECD Countries

AbstractThis paper estimates the Feldstein–Horioka equation from 1960–2007 with a panel of 13 OECD countries with the Pedroni method. It is found that the Feldstein–Horioka puzzle exists in a weaker form. Structural break tests indicated that there was a break in the mid‐1970s or in the early 1990s. These break dates seem to capture the effects of the last decade of the Bretton Woods agreement and the early years of the Maastricht agreement. In the post‐break periods, this relationship is weaker and the saving retention coefficient has declined, implying that capital mobility has increased between these OECD countries. It is likely that these two agreements may have decreased investor uncertainty and improved capital mobility. However, this conclusion should be interpreted cautiously because alternative explanations for the observed correlation between the saving–investment ratios are possible. For example, Byrne et al. (2009) have argued that the observed correlation between investment–saving ratios could be due to common global factors and therefore may not be useful for testing whether capital mobility has decreased or increased.

International Capital Mobility: A Panel Analysis for OECD Countries

This paper investigates the savings-investment relationship, also known as the Feldstein-Horioka puzzle, for a panel of 30 OECD countries over 1960-2006. It utilizes the recently-developed panel cointegration techniques to test and estimate the long-run equilibrium relationship between savings and investment. Investment and savings rates are found to have unit roots and to be cointegrated, based on 5 different panel unit root tests and 3 types of panel cointegration tests. The estimated coefficients on the savings rate employing CCR, DOLS, and FMOLS techniques, exhibit a declining trend over subsample periods. Moreover, the magnitude of the estimated saving-retention coefficients is much smaller than those reported by Feldstein and Horioka (1980), who did not consider the nonstationarity of data and the resulting spurious regression problem. It suggests that international capital mobility in the OECD economies has almost quadrupled over 1960-2006 and substantially increased in the 1990s and 2000s. The empirical findings in this paper provide evidence against the Feldstein-Horioka puzzle in OECD countries over 1960-2006.

: OECD (International Capital Mobility: A Panel Analysis for OECD Countries)

Korean Abstract: 본고에서는 1960~2006년 기간 중 OECD 30개국의 패널 자료를 사용하여 Feldstein-Horioka puzzle로 알려진 저축-투자 상관관계를 조사한다. 본연구는 최근 개발된 패널 공적분 기법들을 활용하여 OECD 국가들의 국내 저축률 및 투자율간의 장기 균형관계 를 검정하고 추정한다. 저축률과 투자율 변수들은, 5 종의 패널 단위근 검정과 3 종의 패널 공적분 검정에 근거하여, 단위근이 존재하고 공적분되어 있다는 것이 발견된다. CCR, DOLS 및 FMOLS 기법들을 사용한 저축유지율 계수 추정치들은 표본기간 중 하 향 추세를 보여 왔음이 판명되었다. 본고에서 저축유지율 계수 추정치들의 크기는, 통계 자료의 비정상성과 그로 인한 가성회귀 문제를 고려하지 않은 Feldstein and Horioka (1980) 보다 훨씬 작게 나타났다. 본고의 실증 분석 결과는 OECD 회원국에서 국제 자 본이동성이 1960~2006년 기간 중 거의네 배가 되었고,특히 1990년대에 and 2000년대에 크게 증가하였음을 보여준다. 본고의 실증 분석 결과는 1960~2006년 기간 중 30개 OECD 국가들에서 Feldstein-Horioka puzzle과 반대되는 증거를 제시한다. English Abstract:This paper investigates the savings-investment relationship, also known as the Feldstein-Horioka puzzle, for a panel of 30 OECD countries over 1960-2006. It utilizes the recently-developed panel cointegration techniques to test and estimate the long-run equilibrium relationship between savings and investment. Investment and savings rates are found to have unit roots and to be cointegrated, based on 5 different panel unit root tests and 3 types of panel cointegration tests. The estimated coefficients on the savings rate employing CCR, DOLS, and FMOLS techniques, exhibit a declining trend over subsample periods. Moreover, the magnitude of the estimated saving-retention coefficients is much smaller than those reported by Feldstein and Horioka (1980), who did not consider the nonstationarity of data and the resulting spurious regression problem. It suggests that international capital mobility in the OECD economies has almost quadrupled over 1960-2006 and substantially increased in the 1990s and 2000s. The empirical findings in this paper provide evidence against the Feldstein-Horioka puzzle in OECD countries over 1960-2006.

Systems GMM estimates of the Feldstein–Horioka puzzle for the OECD countries and tests for structural breaks

A systems GMM estimation method is used to estimate the Feldstein–Horioka equation from 1960 to 2007 with a panel of 13 OECD countries. It is found that the Feldstein–Horioka puzzle exists in a weaker form with a much reduced saving retention coefficient. The Bretton Woods agreement in particular seems to have weakened the Feldstein–Horioka puzzle by significantly improving international capital mobility. In comparison the Maastricht agreement seems to have improved capital mobility only by a small magnitude. The Blundell and Bond systems GMM method and structural break tests of Mancini-Griffoli and Pauwels are used in this paper.

The Feldstein‐Horioka Fact

This paper shows that general equilibrium effects can partly rationalize the high correlation between saving and investment rates observed in OECD countries. We find that once controlling for general equilibrium effects the saving-retention coefficient remains high in the 70’s but decreases considerably since the 80’s, consistently with the increased capital mobility in OECD countries.

Testing the validity of the Feldstein–Horioka puzzle for Australia

This article presents the details of an investigation into the relationship between investment and savings in Australia over the period 1960 to 2007. Using five time series techniques our results reveal that the Feldstein–Horioka puzzle exists in a weak form, with a lower saving retention coefficient. Granger causality tests illustrate that savings Granger causes investment, both in the short and long runs. Our results suggest Australia could effectively adopt policies that focus on increasing investment through increasing domestic savings.

A fuzzy analysis of country-size argument for the Feldstein–Horioka puzzle

This study aims to analyze the effect of country size, represented by relative Gross National Products (GNP), on the association between domestic investment and saving, using data from a panel of 21 OECD countries. The countries are clustered into four groups with respect to their relative country sizes with an application of Fuzzy c-Means clustering technique. The novelty of this approach is that it is an unsupervised method that generates membership values between zero and one instead of binary values that take values of zero or one only. In addition to this it has the advantages of its tolerance to imprecise data and the ease of understanding. The results show that the saving retention coefficients are greater for larger countries except for the cluster which contains the largest country. Thus, this work presents only partial evidence that the country size affects the relationship of domestic saving and investment.

The Feldstein – Hoiroka puzzle across countries

This article tests the Feldstein–Hoiroka ‘puzzle’ for a sample of 49 countries from two angles; that of co-movements in the saving-investment series and the magnitude of the saving-retention coefficient (SRC). The overall conclusion we obtain from the results of three different cointegration tests leaves no room for ‘puzzle’ in the majority of the countries included in the sample. On the other hand, various statistical tests applied to the SRCs show that there are significant differences among the high-income, middle-income and low-income country groups with regards to the salient aspects of capital mobility. First, there are significant differences in the average SRCs of the country groups. Second, the SRCs are differently distributed around their means among the country groups. The results yielded by a third test dictate that future research should pay more attention to the underlying distribution of the SRCs within country groups when testing the ‘country size’ argument.

What Do Productivity Shocks Tell Us About the Saving-Investment Relationship?

This study is a contribution to the empirical literature on the significance of productivity shocks in explaining a high saving-investment correlation, using data from a panel of 21 OECD countries over the period 1970-2003. The study looks at the distributional properties of the productivity shocks in order to test if productivity shocks can relate saving to investment. To this end, we divide the countries into three groups with respect to the distributional characteristics of productivity shocks in each country with an application of the Fuzzy-c-means (FCM) clustering technique. The results provide some support for the productivity shock argument, indicating that the saving retention coefficients are greater for the countries subject to large productivity shocks in magnitude.

A new approach to bootstrap inference in functional coefficient models

To infer on functional dependence of regression parameters, a new, factor based bootstrap approach is introduced, that is robust under various forms of heteroskedastic error terms. Modeling the functional coefficient parametrically, the bootstrap approximation of an F -statistic is shown to hold asymptotically. In simulation studies with both parametric and nonparametric functional coefficients, factor based bootstrap inference outperforms the wild bootstrap and pairs bootstrap approach, according to its rejection frequencies under the null hypothesis. Applying the functional coefficient model to a cross sectional investment regression on savings, the saving retention coefficient is found to depend on third variables as the population growth rate and the openness ratio.

Capital mobility in saving and investment: A time-varying coefficients approach

This paper uses a model with time-varying coefficients in order to track changes in Feldstein–Horioka saving-retention coefficients over time. To the extent that such coefficients measure international capital mobility, the main empirical findings are as follows. First, the stability of the saving-retention coefficient is strongly rejected. Second, capital has long been perfectly mobile in Canada. Third, capital mobility has never been high in the United States. Fourth, capital was more mobile in Japan and the United Kingdom at the turn of the 20th century than it has been during the postwar period. Capital mobility has risen in Argentina, Italy and Sweden since around 1970. Finally, capital mobility for most of the countries considered has not monotonically increased during the postwar period.

Exchange rate regimes, saving glut and the Feldstein–Horioka puzzle: The East Asian experience

This paper investigates whether the recent experience of the emerging East Asian countries with current account surpluses is consistent with the “saving glut” hypothesis and the Feldstein and Horioka puzzle. The evidence suggests that the saving retention coefficients declined substantially in most of the countries after an endogenous break date coinciding with a major exchange rate regime change with the 1997–1998 crisis. Exchange rate flexibility appears to be enhancing financial integration. The results are consistent with an “investment slump” explanation rather than the “saving glut” postulation.