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The Effect of Savings Rate on Investment in Selected Developed and Developing Countries

Author

Listed:
  • Salmani, Behzad

    () (Professor of Economics, University of Tabriz)

  • Barghi Oskoee, Mohammad Mahdi

    () (Associate professor of Economics, University of Tabriz)

  • Razzaghi, Somayeh

    () (Ph.D Candidate in Economics, University of Tabriz)

  • Khodaverdizadeh, Saber

    () (Ph.D Candidate in Economics, University of Tabriz)

Abstract

In economic literature and especially in international economy literature, Feldstein and Hori Oka puzzle (briefly: F-H puzzle) has special consideration. According to F-H puzzle, in countries which have high international capital mobility, there is a positive but weak meaningful statically correlation between investment rate and domestic saving rate. We investigate threshold impact of saving rate on investment rate in selected developed and developing countries during 1995-2012 due to experiment F-H puzzle. We used Panel Smooth Transition Regression (PSTR) Model in order to study F-H puzzle in these countries. The results of linear relationship test strongly confirm nonlinear relationship between variables of the paper. According to the estimate results, threshold limit of saving calculated (for developed countries: 17.8 and for developing countries: 32) and slope parameter (Transfer Rate) also accounted (for developed countries: 0.1 and for developing countries: 10.3). In developed and developing countries saving rate has positive and meaningful statically effect on investment growth in both regimes. However in developing countries saving rate has less [positive and meaningful statically] effect on investment growth than developed countries. Paper results reject F-H puzzle in both developed and developing countries.

Suggested Citation

  • Salmani, Behzad & Barghi Oskoee, Mohammad Mahdi & Razzaghi, Somayeh & Khodaverdizadeh, Saber, 2016. "The Effect of Savings Rate on Investment in Selected Developed and Developing Countries," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 3(3), pages 45-68, November.
  • Handle: RePEc:ris:qjatoe:0050
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    Keywords

    Feldstein and Hori Oka puzzle; Developed countries; Developing countries; Panel Smooth Transition Regression (PSTR) model.;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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