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Domestic Saving and Foreign Investment in Australia: A Granger Causality Test

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  • Jordan Shan
  • Fiona Sun

Abstract

This paper investigates the nature of the causal relationship between domestic saving and foreign investment in Australia using the Granger no-causality test procedure developed by Toda and Yamamoto (1995). The findings in the paper suggest that foreign investment has Granger-caused domestic saving in Australia but that no causality was found from saving to foreign investment. Therefore, the results reported in the paper reject the arguments by FitzGerald (1993) and support, indirectly, the Pitchford (1990) hypothesis in relation to the foreign debt debate in Australia and are consistent with the results of Layton and Makin (1993). [F21, F30]

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  • Jordan Shan & Fiona Sun, 1998. "Domestic Saving and Foreign Investment in Australia: A Granger Causality Test," International Economic Journal, Taylor & Francis Journals, vol. 12(4), pages 79-87.
    • Handle: RePEc:taf:intecj:v:12:y:1998:i:4:p:79-87
    DOI: 10.1080/10168739800000022
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    1. J. D. Pitchford, 1989. "A Sceptical View of Australia's Current Account and Debt Problem," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 22(2), pages 5-14, June.
    2. A. J. Makin, 1989. "Is the Current Account Deficit Sustainable?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 22(2), pages 29-33, June.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Cumberworth, Matthew & Milbourne, Ross, 1996. "External Debt and Liabilities: Evidence from a Cross Section of Countries," The Economic Record, The Economic Society of Australia, vol. 72(218), pages 201-213, September.
    5. Zapata, Hector O & Rambaldi, Alicia N, 1997. "Monte Carlo Evidence on Cointegration and Causation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(2), pages 285-298, May.
    6. Bodman, Philip M, 1996. "On Export-Led Growth in Australia and Canada: Cointegration, Causality and Structural Stability," Australian Economic Papers, Wiley Blackwell, vol. 35(67), pages 282-299, December.
    7. Tony Makin, 1994. "Open economy measures of wealth and Hicksian national income," Open Economies Review, Springer, vol. 5(4), pages 361-369, October.
    8. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    9. Leamer, Edward E., 1985. "Vector autoregressions for causal inference?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 255-304, January.
    10. Milbourne, Ross & Otto, Glenn, 1992. "Consumption Smoothing and the Current Account," Australian Economic Papers, Wiley Blackwell, vol. 31(59), pages 369-384, December.
    11. Toda, Hiro Y, 1994. "Finite Sample Properties of Likelihood Ratio Tests for Cointegrating Ranks when Linear Trends are Present," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 66-79, February.
    12. J. D. Pitchford, 1989. "Does Australia Really Have A Current Account Problem?," Economic Papers, The Economic Society of Australia, vol. 8(4), pages 25-32, December.
    13. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. J Pentecost Eric & Ramlogan Carlyn, 2000. "The Savings Ratio and Financial Repression in Trinidad and Tobago," International Economic Journal, Taylor & Francis Journals, vol. 14(2), pages 67-84.
    2. Harrison, Ann E. & Rodriguez-Clare, Andres, 2009. "Trade, Foreign Investment, and Industrial Policy," MPRA Paper 15561, University Library of Munich, Germany.
    3. Esso, Loesse Jacques, 2009. "La dépendance démographique est-elle un obstacle à l’épargne et à la croissance en Côte d’Ivoire?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 85(4), pages 361-382, décembre.
    4. Jr-Tsung Huang, 2007. "Labor force participation and juvenile delinquency in Taiwan: a time series analysis," Journal of Family and Economic Issues, Springer, vol. 28(1), pages 137-150, March.
    5. Harrison, Ann & Rodríguez-Clare, Andrés, 2010. "Trade, Foreign Investment, and Industrial Policy for Developing Countries," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4039-4214, Elsevier.
    6. Devanthran, Haritharan, 2009. "Interdependence of SAARC-7 countries: an empirical study of business cycles," MPRA Paper 32798, University Library of Munich, Germany.

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