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Testing the validity of the Feldstein-Horioka puzzle for Australia

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  • Saten Kumar

    (Department of Business Economics, Auckland University of Technology)

  • Scott Fargher

    (Department of Business Economics, Auckland University of Technology)

  • Don J. Webber

    ()
    (Department of Business Economics, Auckland University of Technology and Department of Economics, UWE, Bristol)

Abstract

This paper presents an investigation into the relationship between investment and savings in Australia over the period 1960-2007. Using four 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 cause 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://carecon.org.uk/DPs/0911.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0911.

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Length: 13 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:uwe:wpaper:0911

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Keywords: Savings; investment; capital mobility;

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References

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  1. Jerry Coakley & Ana-Maria Fuertes & Fabio Spagnolo, 2004. "Is the Feldstein-Horioka Puzzle History?," Manchester School, University of Manchester, University of Manchester, vol. 72(5), pages 569-590, 09.
  2. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9552, Universite de Montreal, Departement de sciences economiques.
  3. Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 24(1), pages 55-103, January.
  4. Sathye, Milind, 2001. "X-efficiency in Australian banking: An empirical investigation," Journal of Banking & Finance, Elsevier, Elsevier, vol. 25(3), pages 613-630, March.
  5. Jan-Egbert Sturm & Barry Williams, 2002. "Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia," CESifo Working Paper Series 816, CESifo Group Munich.
  6. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9807, Universite de Montreal, Departement de sciences economiques.
  7. Sinha, Tapen & Sinha, Dipendra, 2004. "The mother of all puzzles would not go away," Economics Letters, Elsevier, Elsevier, vol. 82(2), pages 259-267, February.
  8. 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.
  9. Martin Schmidt, 2003. "Savings and investment in Australia," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(1), pages 99-106.
  10. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 90(358), pages 314-29, June.
  11. 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, Elsevier, vol. 23(1), pages 113-131, February.
  12. Hussein, Khaled A., 1998. "International capital mobility in OECD countries: The Feldstein-Horioka 'puzzle' revisited," Economics Letters, Elsevier, Elsevier, vol. 59(2), pages 237-242, May.
  13. 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, OECD Publishing,CIRET, vol. 2007(3), pages 367-386.
  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, Elsevier, vol. 63(2), pages 64-76, June.
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Cited by:
  1. Saten Kumar & Don J. Webber, 2013. "Australasian money demand stability: application of structural break tests," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 45(8), pages 1011-1025, March.
  2. 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.
  3. Saten Kumar, 2011. "Estimating export demand equations in selected Asian countriess," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 4(1), pages 5-16, February.

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