Savings and investment in South Asia: Evidence from likelihood ratio based panel cointegration
AbstractPurpose – This paper seeks to contribute to the study of the relationship between savings and investment in a panel of five South Asian countries. Design/methodology/approach – A number of unit root tests such as Levin, Lin, and Chu or LLC, Breitung, Im, Pesaran, and Shin or IPS, Fisher-type tests using ADF and Fisher-type tests using PP tests are conducted that confirm the non-stationarity of data. Then the paper applies maximum likelihood-based panel cointegration method to examine the relationship between savings and investment using data on investment and savings for five South Asian developing countries, namely, Bangladesh, Pakistan, India, Nepal, and Sri Lanka over the period 1973-2007 compiled from the World Development Indicator (WDI) Database 2008 CD-ROM. Findings – The results obtained suggest that savings and investment are cointegrated, which implies that the Feldstein-Horioka (F-H) puzzle does not hold in this region. It is also found that most of these countries have maintained an international solvency condition. Originality/value – This is another contribution that would enrich the existing literature on the F-H puzzle. The paper includes data that involve the longest sample period. No other study, as of now, has employed the panel cointegration method to study the savings investment relationship in this region.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 37 (2010)
Issue (Month): 6 (September)
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Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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