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Testing the validity of the Feldstein--Horioka puzzle for Australia

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  • Saten Kumar
  • Don J. Webber
  • Scott Fargher

Abstract

This article presents the details of an investigation into the relationship between investment and savings in Australia over the period 1960 to 2007. Using five time series techniques our results reveal that the Feldstein--Horioka puzzle exists in a weak form, with a lower saving retention coefficient. Granger causality tests illustrate that savings Granger causes investment, both in the short and long runs. Our results suggest Australia could effectively adopt policies that focus on increasing investment through increasing domestic savings.

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File URL: http://hdl.handle.net/10.1080/00036846.2010.511993
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 5 (February)
Pages: 599-605

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Handle: RePEc:taf:applec:44:y:2012:i:5:p:599-605

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  1. Sathye, Milind, 2001. "X-efficiency in Australian banking: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 25(3), pages 613-630, March.
  2. Martin Schmidt, 2003. "Savings and investment in Australia," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 99-106.
  3. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  4. 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.
  5. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  6. Sinha, Tapen & Sinha, Dipendra, 2004. "The mother of all puzzles would not go away," Economics Letters, Elsevier, vol. 82(2), pages 259-267, February.
  7. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
  8. Hussein, Khaled A., 1998. "International capital mobility in OECD countries: The Feldstein-Horioka 'puzzle' revisited," Economics Letters, Elsevier, vol. 59(2), pages 237-242, May.
  9. Jan-Egbert Sturm & Barry Williams, 2002. "Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia," CESifo Working Paper Series 816, CESifo Group Munich.
  10. Hoffmann, Mathias, 2004. "International capital mobility in the long run and the short run: can we still learn from saving-investment data?," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 113-131, February.
  11. Jerry Coakley & Ana-Maria Fuertes & Fabio Spagnolo, 2004. "Is the Feldstein-Horioka Puzzle History?," Manchester School, University of Manchester, vol. 72(5), pages 569-590, 09.
  12. Bruce Felmingham & Arusha Cooray, 2007. "The Cyclical and Trend Behavour of Australian Investment and Savings," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2007(3), pages 367-386.
  13. 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.
  14. Apergis, Nicholas & Tsoumas, Chris, 2009. "A survey of the Feldstein-Horioka puzzle: What has been done and where we stand," Research in Economics, Elsevier, vol. 63(2), pages 64-76, June.
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Cited by:
  1. Kumar, Saten & Shahbaz, Muhammad, 2010. "Coal Consumption and Economic Growth Revisited: Structural Breaks, Cointegration and Causality Tests for Pakistan," MPRA Paper 26151, University Library of Munich, Germany.
  2. Kumar, Saten & Webber, Don J., 2010. "Australasian money demand stability: Application of structural break tests," MPRA Paper 27569, University Library of Munich, Germany.
  3. Saten Kumar, 2011. "Estimating export demand equations in selected Asian countriess," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 4(1), pages 5-16, February.

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