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Testing the validity of the Feldstein--Horioka puzzle for Australia

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Listed:
  • Saten Kumar
  • Don J. Webber
  • Scott Fargher

Abstract

This article presents the details of an investigation into the relationship between investment and savings in Australia over the period 1960 to 2007. Using five time series techniques our results reveal that the Feldstein--Horioka puzzle exists in a weak form, with a lower saving retention coefficient. Granger causality tests illustrate that savings Granger causes investment, both in the short and long runs. Our results suggest Australia could effectively adopt policies that focus on increasing investment through increasing domestic savings.

Suggested Citation

  • Saten Kumar & Don J. Webber & Scott Fargher, 2012. "Testing the validity of the Feldstein--Horioka puzzle for Australia," Applied Economics, Taylor & Francis Journals, vol. 44(5), pages 599-605, February.
    • Handle: RePEc:taf:applec:44:y:2012:i:5:p:599-605
    DOI: 10.1080/00036846.2010.511993
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    3. Santiago Grullon, 2016. "The Feldstein-Horioka Hypothesis: Co-Integration and Causality Results for Selected Countries," Quarterly Journal of Business Studies, Research Academy of Social Sciences, vol. 2(3), pages 134-142.
    4. Kumar, Saten, 2015. "Regional integration, capital mobility and financial intermediation revisited: Application of general to specific method in panel data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 1-17.
    5. C. P. Barros & Luis A. Gil-Alana, 2015. "Investment and saving in Angola and the Feldstein-Horioka puzzle," Applied Economics, Taylor & Francis Journals, vol. 47(44), pages 4793-4800, March.
    6. Mu-Shun Wang, 2013. "An Investigation of the Feldstein–Horioka Puzzle for the Association of Southeast Asian Nations Economies," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 46(4), pages /, December.
    7. Farzad Mirmahboub, 2017. "Financial integration faced with the crisis: comparative cases of Greece and Portugal," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 64(3), pages 269-284, September.
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    9. Saten Kumar & Don J. Webber, 2013. "Australasian money demand stability: application of structural break tests," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 1011-1025, March.

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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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