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Capital Mobility, Saving and Investment Link: Evidence from Sub-Saharan Africa

  • Douglas Agbetsiafa


    (School of Business & Economics, Indiana University)

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    The saving- investment correlation and its implication for capital mobility across borders has been sharply debated in the literature since the pioneering work of Feldstein and Horioka (1980). In this paper, the debate is extended to six emerging economies in Africa using cointegration tests proposed by Johansen and Juselius, and causality tests based on an error correction model. The results indicate that saving and investment are integrated of order one. Furthermore, cointegration tests show that the two series share a long-run equilibrium association in the six countries, and therefore lend support to the Feldstein-Horioka conclusion that long-term capital is not mobile internationally. The causality tests indicate a unidirectional causality from saving to investment in Ghana, Ivory Coast, Kenya, Nigeria, and Zambia, and a bidirectional causality for South Africa. These results have important policy implications, especially for these and other small open economies where increases in domestic saving will not necessarily translate into higher domestic investment.

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    Article provided by African Finance and Economic Association in its journal Journal of African Development.

    Volume (Year): 5 (2002)
    Issue (Month): 2 ()
    Pages: 1-19

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    Handle: RePEc:afe:journl:v:5:y:2002:i:2:p:1-19
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