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Testing the Saving-Investment correlations in India: An evidence from single-equation and system estimators

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  • Singh, Tarlok
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    Abstract

    This study tests the Saving-Investment correlations in India using both single-equation and system estimators. All the estimators suggest the cointegrating relationship between saving and investment, and the results are robust to the choice of estimator. The conventional and new CUSUM tests show long-run stability of equilibrium residuals and reinforce the cointegrating relationship between the model series. The slope parameter on saving is significantly different from zero, but not from one. These results support the FH hypothesis and suggest the imperfect mobility of capital and home-bias in the asset portfolio of domestic investors. The heavy reliance of investment on domestic saving also reinforces the 'Lucas Puzzle' on the lack of capital flows from the developed countries to the developing countries with scare capital and higher marginal product of capital.

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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 25 (2008)
    Issue (Month): 5 (September)
    Pages: 1064-1079

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    Handle: RePEc:eee:ecmode:v:25:y:2008:i:5:p:1064-1079

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    Web page: http://www.elsevier.com/locate/inca/30411

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    Cited by:
    1. Solarin Sakiru Adebola & Jauhari Dahalan, 2012. "Capital Mobility: An Application of Savings-Investment Link for Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 2(1), pages 1-11.
    2. Eleftherios Makedonas & Stavros Tsopoglou, 2013. "Does Accounting for Foreign Capital Flows help to solve the Feldstein and Horioka Puzzle? The Case of Norway," Economic Issues Journal Articles, Economic Issues, Economic Issues, vol. 18(1), pages 39-56, March.

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