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

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  • Lutfi Erden
  • Ibrahim Ozkan
  • Burak Gunalp
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    Abstract

    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.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2009 (2009)
    Issue (Month): 3 ()
    Pages: 195-208

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    Handle: RePEc:prg:jnlpep:v:2009:y:2009:i:3:id:349:p:195-208

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    Related research

    Keywords: Productivity Shocks; Kolmogorov-Smirnov Statistics; International Capital Mobility; Fuzzy Clustering; Feldstein-Horioka Puzzle;

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    References

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    1. Tsungwu Ho & Ho-Chuan Huang, 2006. "The smooth-saving-retention-coefficient with country-size," Applied Economics Letters, Taylor & Francis Journals, vol. 13(4), pages 247-250.
    2. Kim, Sunghyun Henry, 2001. "The saving-investment correlation puzzle is still a puzzle," Journal of International Money and Finance, Elsevier, vol. 20(7), pages 1017-1034, December.
    3. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    4. Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 55-103, January.
    5. Reuven Glick & Kenneth Rogoff, 1992. "Global versus country-specific productivity shocks and the current account," Working Papers in Applied Economic Theory 92-06, Federal Reserve Bank of San Francisco.
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    8. Kim, Soyoung & Kim, Sunghyun H. & Wang, Yunjong, 2007. "Saving, investment and international capital mobility in East Asia," Japan and the World Economy, Elsevier, vol. 19(2), pages 279-291, March.
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    12. Julien Fouquau & Christophe Hurlin & Isabelle Rabaud, 2007. "The Feldstein-Horioka Puzzle: a Panel SmoothTransition Regression Approach," Working Papers halshs-00156688, HAL.
    13. Bahmani-Oskooee, Mohsen & Chakrabarti, Avik, 2005. "Openness, size, and the saving-investment relationship," Economic Systems, Elsevier, vol. 29(3), pages 283-293, September.
    14. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1996. "Current Account Solvency and the Feldstein-Horioka Puzzle," Economic Journal, Royal Economic Society, vol. 106(436), pages 620-27, May.
    15. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
    16. Ho, Tsung-wu, 2002. "The Feldstein-Horioka puzzle revisited," Journal of International Money and Finance, Elsevier, vol. 21(4), pages 555-564, August.
    17. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1998. "The Feldstein-Horioka Puzzle and Capital Mobility: A Review," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(2), pages 169-88, April.
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    Cited by:
    1. Timur Han Gur & Lutfi Erden & Ibrahim Ozkan, 2011. "An Empirical Investigation on the Determinants of the Saving-Investment Interaction," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(3), pages 343-353, September.

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