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International Capital Mobility: The Case of Developing Countries

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  • Emmanuel C. Anoruo

Abstract

This paper uses the method of dynamic OLS (DOLS) in conjunction with cointegration procedure to examine the degree of international capital mobility for 25 developing countries. Specifically, three analyses are undertaken. First, the time series properties of domestic saving and investment are ascertained with the help of the modified Dickey-Fuller (DF-GLS) methodology. Second, the long-run equilibrium relationship between domestic saving and investment is explored by using the two-step cointegration test proposed by Engle and Granger (1987). Third, the Wald chi-square (c2) test is employed to examine the unity correlation between the two variables. The DF-GLS unit root test indicates that domestic saving and investment are integrated of order one [I(1)]. The Wald test rejects the hypothesis of perfect capital mobility for 21 out of the 25 countries. The cointegration results suggest that for most of the sample countries, domestic saving and investment do not share long-run equilibrium association, which constitutes evidence in favor of international capital mobility.

Suggested Citation

  • Emmanuel C. Anoruo, 2005. "International Capital Mobility: The Case of Developing Countries," The IUP Journal of Applied Economics, IUP Publications, vol. 0(5), pages 7-18, September.
    • Handle: RePEc:icf:icfjae:v:04:y:2005:i:5:p:7-18
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