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What do Savings-Investment Correlations tell us about the International Capital Mobility of Less Developed Countries?

Author

Listed:
  • Holmes, Mark J.

    (Waikato University Management School)

Abstract

This paper investigates the extent of capital mobility with respect to less developed countries over the study period 1979-2001. For this purpose, the Feldstein-Horioka equation linking domestic savings and investment is estimated. However, there is a novel empirical approach in this study based on the employment of panel data methods of cointegration testing and estimation of the long-run saving retention coefficient. There is strong evidence of cointegration between domestic savings and investment. Panel estimation based on fully modified ordinary least squares indicates that capital is imperfectly mobile with a long-run saving retention coefficient of about one-third. This low value suggests that capital mobility, though imperfect, is nonetheless quite high. Further estimation based on sub-groups comprising Asian and Latin American countries points towards a similar degrees of capital mobility.

Suggested Citation

  • Holmes, Mark J., 2005. "What do Savings-Investment Correlations tell us about the International Capital Mobility of Less Developed Countries?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 590-603.
    • Handle: RePEc:ris:integr:0331
    as

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    Citations

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    Cited by:

    1. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    2. Ekong, Christopher N. & Onye, Kenneth U., 2015. "International Capital Mobility and Saving-Investment Nexus in Nigeria: Revisiting Feldstein-Horioka Hypothesis," MPRA Paper 88232, University Library of Munich, Germany.
    3. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    4. Ana Lucia Luis & Natalia Teixeira & Rui Braz, 2023. "Portuguese Households Savings in Times of Pandemic: A Way to Better Resist the Escalating Inflation?," Papers 2304.02573, arXiv.org.
    5. Vasudeva N. R. Murthy & Natalya Ketenci, 2020. "Capital mobility in Latin American and Caribbean countries: new evidence from dynamic common correlated effects panel data modeling," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-17, December.
    6. Hiroyuki Taguchi & Ni Lar & Sereyvuth Ky, 2021. "Revisiting the effects of demographic dynamics on economic growth in Asia: a panel vector‐autoregressive approach with a saving channel," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(2), pages 77-94, November.
    7. Vasudeva N.R. Murthy & Natalya Ketenci, 2021. "The Feldstein–Horioka hypothesis for African countries: Evidence from recent panel error‐correction modelling," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5762-5774, October.
    8. Ganic Mehmed & Novalic Amila, 2023. "Does regional trade integration reinforce or weaken capital mobility? New evidence from four free trade areas," Economics and Business Review, Sciendo, vol. 9(3), pages 239-264, October.

    More about this item

    Keywords

    LDCs; Capital mobility; Savings; Investment; Panel data; Cointegration;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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