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Savings and investment in South Asia

Author

Listed:
  • Abu N.M. Wahid
  • Mohammad Salahuddin
  • Abdullah M. Noman

Abstract

Purpose - This paper seeks to contribute to the study of the relationship between savings and investment in a panel of five South Asian countries. Design/methodology/approach - A number of unit root tests such as Levin, Lin, and Chu or LLC, Breitung, Im, Pesaran, and Shin or IPS, Fisher‐type tests using ADF and Fisher‐type tests using PP tests are conducted that confirm the non‐stationarity of data. Then the paper applies maximum likelihood‐based panel cointegration method to examine the relationship between savings and investment using data on investment and savings for five South Asian developing countries, namely, Bangladesh, Pakistan, India, Nepal, and Sri Lanka over the period 1973‐2007 compiled from the World Development Indicator (WDI) Database 2008 CD‐ROM. Findings - The results obtained suggest that savings and investment are cointegrated, which implies that the Feldstein‐Horioka (F‐H) puzzle does not hold in this region. It is also found that most of these countries have maintained an international solvency condition. Originality/value - This is another contribution that would enrich the existing literature on the F‐H puzzle. The paper includes data that involve the longest sample period. No other study, as of now, has employed the panel cointegration method to study the savings investment relationship in this region.

Suggested Citation

  • Abu N.M. Wahid & Mohammad Salahuddin & Abdullah M. Noman, 2010. "Savings and investment in South Asia," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 37(6), pages 658-666, November.
    • Handle: RePEc:eme:jespps:v:37:y:2010:i:6:p:658-666
    DOI: 10.1108/01443581011086684
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    References listed on IDEAS

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    1. Baxter, Marianne & Crucini, Mario J, 1993. "Explaining Saving-Investment Correlations," American Economic Review, American Economic Association, vol. 83(3), pages 416-436, June.
    2. Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 55-103, January.
    3. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    4. James Ang, 2007. "Are saving and investment cointegrated? The case of Malaysia (1965-2003)," Applied Economics, Taylor & Francis Journals, vol. 39(17), pages 2167-2174.
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    Cited by:

    1. Biru Paksha Paul, 2013. "Output Relationships in South Asia: Are Bangladesh and India Different from Neighbours?," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 14(1), pages 35-57, March.
    2. Solarin Sakiru Adebola & Jauhari Dahalan, 2012. "Capital Mobility: An Application of Savings-Investment Link for Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 2(1), pages 1-11.

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    Keywords

    Savings; Investments; South Asia;
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