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Capital mobility in the Caucasus

  • Jamilov, Rustam
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    This paper examines the degree of capital mobility in the countries of the Caucasus. We employ a simple model developed in the seminal paper by Feldstein and Horioka (1980). First, we estimate the model using conventional time-series econometrics in order to capture the short-run dynamics. Then, we construct a panel of 6 countries of the Caucasus – Azerbaijan, Armenia, Georgia, Kazakhstan, Russia, and Turkey – and obtain the long-run estimates by applying a panel cointegration approach. To that end, we make use of the fully modified ordinary least squares (FMOLS) estimation method for heterogeneous panels, developed by Pedroni (2000). We estimate the long-run saving retention ratio to be quite high, showing that capital mobility in the Caucasus is considerably low. In addition, we also look at the country ratings of the Index of Economic Freedom to compare our results with the official rankings in market openness. We also put our findings in an international context, and confirm that Caucasus is relatively financially restrained. Finally, we discuss the implications of our results for the region's policy-relevant issues such as financial integration, human capital mobility, across-border trading, fiscal and monetary policy, exchange rate volatility, solvency management, responsive consumption smoothing, and recession resistance.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38184.

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    Date of creation: Feb 2012
    Date of revision: Apr 2012
    Handle: RePEc:pra:mprapa:38184
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    9. Easterly, William R & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1995. "Money Demand and Seigniorage-Maximizing Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 583-603, May.
    10. Bangake, Chrysost & Eggoh, Jude C., 2011. "The Feldstein-Horioka puzzle in African countries: A panel cointegration analysis," Economic Modelling, Elsevier, vol. 28(3), pages 939-947, May.
    11. Amirkhalkhali, Saleh & Dar, Atul A, 1993. "Testing for Capital Mobility: A Random Coefficients Approach," Empirical Economics, Springer, vol. 18(3), pages 523-41.
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    13. Chihwa Kao & Min-Hsien Chiang, 1999. "On the Estimation and Inference of a Cointegrated Regression in Panel Data," Center for Policy Research Working Papers 2, Center for Policy Research, Maxwell School, Syracuse University.
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    23. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
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    25. Haque, Nadeem U. & Montiel, Peter, 1991. "Capital mobility in developing countries: Some empirical tests," World Development, Elsevier, vol. 19(10), pages 1391-1398, October.
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