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The Feldstein-Horioka model re-visited for African countries

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  • Arusha Cooray
  • Dipendra Sinha

Abstract

We study the relationship between the saving and investment rates for 20 African countries using a long period of data. A high correlation between saving and investment is often taken as evidence of capital immobility. We use the new Ng-Perron unit root tests to examine the stationarity of saving and investment rates. Both Johansen cointegration tests and fractional cointegration tests are used. The results are mixed. The Johansen cointegration tests show that the saving and investment rates are cointegrated only for Rwanda and South Africa. This implies that for the other 18 countries, there is evidence of capital mobility. The fractional cointegration test results are different. The two rates are found to be fractionally cointegrated for the following 12 countries: Algeria, Burundi, Egypt, Morocco, Niger, Rwanda, Senegal, South Africa, Swaziland, Tunisia, Tanzania and Zimbabwe. For Cote d'Ivoire, Kenya, Lesotho and Sierra Leone there is some evidence of capital mobility while the results for Ethiopia, Malawi, Mauritius and Nigeria are mixed.

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  • Arusha Cooray & Dipendra Sinha, 2007. "The Feldstein-Horioka model re-visited for African countries," Applied Economics, Taylor & Francis Journals, vol. 39(12), pages 1501-1510.
    • Handle: RePEc:taf:applec:v:39:y:2007:i:12:p:1501-1510
    DOI: 10.1080/00036840600675679
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    Cited by:

    1. Luis A. Gil-Alana & Christophe André & Rangan Gupta & Tsangyao Chang & Omid Ranjbar, 2016. "The Feldstein--Horioka puzzle in South Africa: A fractional cointegration approach," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(7), pages 978-991, October.
    2. 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.
    3. Kumar, Saten & Sen, Rahul & Srivastava, Sadhana, 2014. "Does economic integration stimulate capital mobility? An analysis of four regional economic communities in Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 33-50.
    4. Christophe Andre & Mehmet Balcilar & Tsangyao Chang & Luis Alberiko Gil-Alana & Rangan Gupta, 2018. "Current account sustainability in G7 and BRICS: Evidence from a long-memory model with structural breaks," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(6), pages 638-654, August.
    5. Reetu Verma & Ali Salman Saleh, 2011. "Saving and investment in Saudi Arabia: an empirical analysis," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 28(2), pages 136-148, June.
    6. Koté, Lassine & Sorgho, Zakaria & Ouedraogo, Carine, 2015. "La Mobilité des Capitaux en Afrique de l'Ouest: Investigations sur des pays de la CEDEAO [Mobility of Capital in West Africa: Study case of ECOWAS Countries]," MPRA Paper 65196, University Library of Munich, Germany.
    7. Joe Garmondyu Greaves, 2018. "Investigating Saving and Investment Relationship: Evidence from an Autoregressive Distributed Lag Bounds Testing Approach in Liberia," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 89-104.
    8. Rajarshi Mitra, 2017. "Domestic Saving-Investment Correlation Puzzle Revisited: A Time Series Analysis for South Africa," Economics Bulletin, AccessEcon, vol. 37(2), pages 1217-1225.
    9. Phiri, Andrew, 2017. "The Feldstein-Horioka puzzle and the global recession period: Evidence from South Africa using asymmetric cointegration analysis," MPRA Paper 79096, University Library of Munich, Germany.
    10. Despina Petreska & Nikica Mojsoska-Blazevski, 2013. "The Feldstein-Horioka Puzzle And Transition Economies," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 58(197), pages 23-46, April – J.

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