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An Empirical Investigation on the Determinants of the Saving-Investment Interaction

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Author Info

  • Timur Han Gur

    ()
    (Department of Economics, Hacettepe University, Turkey)

  • Lutfi Erden

    ()
    (Department of Economics, Hacettepe University, Turkey)

  • Ibrahim Ozkan

    ()
    (Department of Economics, Hacettepe University, Turkey)

Abstract

This study aims to shed light on the Feldstein-Horioka (F-H) puzzle, making use of the potential explanations put forward in the related literature. To this end, the study takes a distinct empirical route, combining a cointegration technique and regression analysis. In the first step, we obtain three definitions for the dependent variable that represent the degree of the interaction between domestic saving and investment (S-I), employing a cointegration analysis for 86 countries in the sample. In the second step, each definition of the dependent variable is regressed on potential explanations for the co-movement of the S-I such as openness, country size, productivity shocks, and real interest rate differentials. After examining a number of potential variables for their explanatory power on this puzzle, however, none of the posited variables are found to be statistically significant determinants of the S-I interaction. The results indicate that the size of the economy, productivity shocks or interest rate differentials have almost no role in explaining the S-I behavior. Further, the findings show that openness has no influence on the S-I interaction, suggesting that it is not plausible to view the S-I correlation as an indicator of international capital mobility as F-H did.

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Bibliographic Info

Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

Volume (Year): 58 (2011)
Issue (Month): 3 (September)
Pages: 343-353

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Handle: RePEc:voj:journl:v:58:y:2011:i:3:p:343-353

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Web page: http://www.panoeconomicus.rs/

Related research

Keywords: Feldstein-Horioka puzzle; Saving-Investment relations; International capital mobility; Cointegration;

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  1. Julia Campos & Neil R. Ericsson & David F. Hendry, 1993. "Cointegration tests in the presence of structural breaks," International Finance Discussion Papers 440, Board of Governors of the Federal Reserve System (U.S.).
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  18. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
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