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Panel data model comparison for empirical saving-investment relations

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Author Info
Helmut Herwartz
Fang Xu

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Abstract

The Feldstein-Horioka puzzle has triggered a broad range of econometric specifications to investigate saving-investment (SI) relations. In this article, we attempt to determine a family of econometric models that is most suitable in explaining actual ratios of domestic investment to GDP via cross-validation techniques. Comparing between, pooled, time and country dependent specifications of the SI relation, the country dependent model is best performing. Moreover, error correction models formalizing adjustment dynamics of domestic investment ratios are markedly outperformed by static panel models. Supporting evidence for a cointegration relation between domestic saving and investment ratios is not found.

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File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/13504850701221949&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 16 (2009)
Issue (Month): 8 ()
Pages: 803-807
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Handle: RePEc:taf:apeclt:v:16:y:2009:i:8:p:803-807

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  1. Rao, B. Bhaskara & Tamazian, Artur & Kumar, Saten, 2009. "Systems GMM estimates of the Feldstein-Horioka puzzle for the OECD countries and tests for structural breaks," MPRA Paper 15312, University Library of Munich, Germany. [Downloadable!]
  2. Kumar, Saten & Rao, B. Bhaskara, 2009. "A Time Series Approach to the Feldstein-Horioka Puzzle with Panel Data from the OECD Countries," MPRA Paper 18464, University Library of Munich, Germany. [Downloadable!]
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