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The Feldstein-Horioka Puzzle and the Global Financial Crisis: Evidence from South Africa using Asymmetric Cointegration Analysis

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  • Phiri, Andrew

    (Department of Economics, Faculty of Business and Economic Studies Nelson Mandela University)

Abstract

In this study we examine the effects of the 2007-2008 global financial crisis on the Feldstein-Horioka coefficient for South Africa using momentum threshold cointegration and error correction techniques applied to quarterly national savings-investment time series collected between 1960:Q1 and 2017:Q1. Our empirical strategy consists of segregating the data into three samples; one corresponding to the full sample (1960:Q1 – 2016:Q4), another corresponding to the pre-crisis period (1960:Q1-2008:Q3) and the last corresponding to the post-crisis period (2008:Q4-2016:Q4). Our empirical results validate asymmetric cointegration effects for both the full and the pre-crisis periods while only accepting a linear cointegration relation for the post-crisis period. The saving-retention coefficient estimates produced are 0.59 (significant), 0.64 (significant), and 0.22 (insignificant) for the full, pre-crisis and post-crisis periods, respectively. These results imply that international capital mobility has increased in the post-crisis period and this may be primarily due to the effects of a redirection of private capital flows by investors to safe haven assets. Therefore policy plans of further relaxing capital controls is inadvisable considering that capital is already highly mobile. Il puzzle Feldstein-Horioka e la crisi finanziaria globale: evidenze dal Sud Africa utilizzando un’analisi di cointegrazione asimmetrica In questo studio esaminiamo gli effetti della crisi finanziaria globale del 2007-2008 sul coefficiente Feldstein-Horioka tramite l’utilizzo di metodologie a cointegrazione e di tecniche error correction (1960:Q1-2016:Q4. La nostra strategia empirica consiste nell’organizzare i dati in tre campioni: il primo corrisponde al campione completo (1960:Q1-2016:Q4), il secondo al periodo pre-crisi (1960:Q1-2008Q3), il terzo al periodo post-crisi (2008:Q4-2016:Q4). I risultati empirici avvalorano gli effetti asimmetrici di cointegrazione sia per il campione completo che per quello relativo al periodo pre-crisi, mentre viene evidenziata solo una relazione di cointegrazione lineare per il periodo post-crisi. Questi risultati implicano che la mobilità internazionale dei capitali è aumentata nel periodo post-crisi e ciò può essenzialmente essere dovuto agli effetti del ri-orientamento dei flussi di capitali privati da parte degli investitori per mettere al sicuro i patrimoni. Si sconsiglia pertanto di pianificare ulteriori controlli di rilascio dei capitali, considerando che questi sono già altamente mobili.

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  • Phiri, Andrew, 2019. "The Feldstein-Horioka Puzzle and the Global Financial Crisis: Evidence from South Africa using Asymmetric Cointegration Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(2), pages 139-170.
    • Handle: RePEc:ris:ecoint:0843
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    13. Vasudeva N.R. Murthy & Natalya Ketenci, 2021. "The Feldstein–Horioka hypothesis for African countries: Evidence from recent panel error‐correction modelling," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5762-5774, October.
    14. Yannick BINEAU, 2010. "A Empirical Assessment of the Feldstein and Horioka Literature," EcoMod2010 259600030, EcoMod.
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    More about this item

    Keywords

    Investment; Savings; Feldstein-Horioka Puzzle; Threshold Cointegration; Threshold Error Correction Model; Sub-Saharan Africa; South Africa;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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