Top

Economic Change and Restructuring

Published in:

01-08-2012

Re-examining the saving-investment nexus: threshold cointegration and causality evidence from the ECOWAS

Author: Loesse Jacques Esso

Published in: Economic Change and Restructuring | Issue 3/2012

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

The aim of this paper is to re-examine the relationship between saving and investment in the case of ECOWAS countries. We then employ the Gregory and Hansen (J Econometr 70:99–126, 1996a; Oxford Bull Econ Stat 58:555–560, 1996b) threshold cointegration tests and the Toda and Yamamoto (J Econometr 66:225–250, 1995) causality procedure. Threshold cointegration approach allows estimating changes in the saving-retention coefficients over time. Using yearly data for the period from 1960 to 2007, we show out two groups of countries regarding the cointegration test results. In the first group (The Gambia and Togo), capital is perfectly mobile since there is no long-run relationship between savings and investment. The second group comprised of the ten other ECOWAS countries studied, is characterized by an incomplete capital mobility. Moreover, in the second group the saving-retention coefficient is time-varying in most of the ECOWAS countries (except for Benin and Niger) and is different from a country to another one. The changes in the saving-retention coefficients indicate how international capital mobility has changed. Moreover, the inclusion of trade openness and country size in the saving-investment equation reduces the saving retention coefficients implying improvement of capital mobility over time. Furthermore, investment rates cause saving rates in Benin, Guinea-Bissau and Niger while saving rates cause investment rates in Cote d’Ivoire, Nigeria and Sierra Leone.

previous article State ownership and control in the Czech Republic

next article Nonlinear adjustment of Asian real exchange rates

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

To save space, we do not present figures about trade openness and country size.

Adedeji OS, Thornton J (2007) Saving, investment and capital mobility in African countries. J Afr Econ 16:393–405CrossRef

African Development Bank (2008) Selected statistics on African countries. African Development Bank, XXVII

AmirKhalkhali S, Dar A (2007) Trade openness and saving-investment correlations. Econ Modell 24:120–127CrossRef

Andrade P, Bruneau C, Gregoir S (2005) Testing for the cointegration rank when some cointegrating directions are changing. J Econometr 124:269–310CrossRef

Andrews DWK (1993) Test for parameter stability and structure change with unknown change points. Econometrica 61:821–856CrossRef

Apergis N, Tsoumas C (2009) A survey of the Feldstein Horioka puzzle: what has been done and where we stand. Res Econ 63:64–76CrossRef

Bagnai A (2006) Structural breaks and the twin deficits hypothesis. Int Econ Econ Policy 3:137–155CrossRef

Bahmani-Oskooee M, Chakrabarti A (2005) Openness, size, and the saving-investment relationship. Econ Syst 29:283–293CrossRef

Balke NS, Fomby TB (1997) Threshold cointegration. Int Econ Rev 38:627–645CrossRef

Bangake C, Eggoh JC (2011) The Feldstein–Horioka puzzle in African countries: a panel cointegration analysis. Econ Modell 28:939–947CrossRef

Baxter M, Crucini MJ (1993) Explaining saving-investment correlations. Am Econ Rev 83:416–436

Bencivenga VR, Smith B (1991) Financial intermediation and endogenous growth. Rev Econ Stud 58:195–209CrossRef

Blanchard O, Giavazzi F (2002) Current account deficits in the Euro area: the end of the Feldstein-Horioka puzzle?. Brook Pap Econ Activity 2:147–186CrossRef

Caprio GA Jr, Howard DH (1984) Domestic saving, current accounts, and international capital mobility. International Finance Discussion Paper no 244. Federal Reserve Board, Washington, DC

Chakrabarti A (2006) The saving-investment relationship revisited: new evidence from multivariate heterogeneous panel cointegration analyses. J Comparat Econ 34:402–419CrossRef

Christiano LJ (1992) Searching for breaks in GNP. J Bus Econ Stat 10:237–250

Coakley J, Kulasi F (1997) Cointegration of long span saving and investment. Econ Lett 54:1–6CrossRef

Coakley J, Kulasi F, Smith R (1996) Current account solvency and the Feldstein–Horioka puzzle. Econ J 106:620–627CrossRef

Demirgüc-Kunt A, Maksimovic V (1998) Law, finance and firm growth. J Finance 53:2107–2131CrossRef

Dickey DA, Fuller WA (1979) Distribution of the estimators for autoregressive time series with a unit root. J Am Stat Assoc 74:427–431

Dorosh PA, Sahn DE (2003) A general equilibrium analysis of the effect of macroeconomic adjustment on poverty in Africa. J Policy Model 22:753–776CrossRef

Enders W, Falk B (1998) Threshold-autoregressive, median-unbiased, and cointegration tests of purchasing power parity. Int J Forecast 14:171–186CrossRef

Enders W, Granger CWF (1998) Unit-root tests and asymmetric adjustment with an example using the term structure of interest rates. J Bus Econ Stat 16:304–311

Enders W, Siklos PL (2001) Cointegration and threshold adjustment. J Bus Econ Stat 19:166–176CrossRef

Engle RF, Granger CWJ (1987) Co-integration and error correction: representation, estimation, and testing. Econometrica 55:251–276CrossRef

Eslamloueyan K, Jafari M (2010) Capital mobility, openness, and saving-investment relationship in Asia. Econ Modell 27:1246–1252CrossRef

Evans P, Kim B-H, Oh K-Y (2008) Capital mobility in saving and investment: a time-varying coefficients approach. J Int Money Finance 27:806–815CrossRef

Fattouh B (2005) Capital mobility and sustainability: evidence from U.S current account data. Empiric Econ 30:245–253CrossRef

Feldstein M (1983) Domestic saving and international capital movements in the long run and the short run. Eur Econ Rev 21:129–151CrossRef

Feldstein M, Horioka C (1980) Domestic saving and international capital flows. Econ J 90:314–329CrossRef

Fosu AK, Kimenyi MS, Ndung’u NS (2003). Economic reforms and restructuring in Sub-Saharan Africa: an overview. J Afr Econ 12:ii1–ii11

Fourquau J, Hurlin C, Rabaud I (2008) The Feldstein-Horioka puzzle: a panel smooth transition regression approach. Econ Modell 25:284–299CrossRef

Georgopoulos GJ, Hejazi W (2005) Feldstein-Horioka meets a time trend. Econ Lett 86:353–357CrossRef

Goldsmith RR (1969) Financial structure and development. Yale University Press, New Haven

Gregory AW, Hansen BE (1996a) Residual-based tests for cointegration in models with regime shifts. J Econometr 70:99–126CrossRef

Gregory AW, Hansen BE (1996b) Tests for cointegration in models with regime and trend shifts. Oxford Bull Econ Stat 58:555–560CrossRef

Gregory AW, Nason JM, Watt D (1994) Testing for structural breaks in cointegrated relationships. J Econometr 71:321–341CrossRef

Gurley JG, Shaw ES (1955) Financial aspects of economic development. Am Econ Rev 45:515–538

Guzel A, Ozdemir ZA (2011) The Feldstein–Horioka puzzle in the presence of structural shifts: the case of Japan versus the USA Research. Int Bus Finance 25:195–202

Hansen BE (1992) Tests for parameter instability in regressions with I(1) processes. J Bus Econ Stat 10:321–335

Hansen BE, Seo B (2002) Testing for two-regime threshold cointegration in vector error-correction models. J Econometr 110:293–318CrossRef

Hericourt J, Maurel M (2005) The Feldstein-Horioka puzzle revisited: An european-regional perspective. William Davidson Institute Working Paper, no 763

Johansen S (1988) Statistical analysis of cointegration vectors. J Econ Dyn Control 12:231–254CrossRef

Johansen S, Juselius K (1990) Maximum likelihood estimation and inferences on cointegration with applications to the demand for money. Oxford Bull Econ Stat 52:169–210CrossRef

Kim SH (2001) The saving-investment correlation puzzle is still a puzzle. J Int Money Finance 20:1017–1034CrossRef

Kim S, Kim SH, Wang Y (2007) Saving, investment and international capital mobility. Jpn World Econ 19:279–291CrossRef

Kim D, Perron P (2009) Unit root tests allowing for a break in the trend function at an unknown time under both the null and alternative hypotheses. J Econometr 148:1–13CrossRef

Kollias C, Mylonidis N, Paleologou S-M (2008) The Feldstein-Horioka puzzle across EU members: evidence from ARDL bounds approach and panel data. Int Rev Econ Finance 17:380–387CrossRef

Kuznets S (1955) Economic growth and income inequality. Am Econ Rev 45:1–28

Lau E, Baharumshah AZ (2003) Sustainability of external imbalances: the case of Malaysia. Singapore Econ Rev 48:61–80CrossRef

Levine R, Loayza N, Beck T (2000) Financial intermediation and growth: causality and causes. J Monetary Econ 46:31–77CrossRef

Lo M, Zivot E (2001) Threshold cointegration and nonlinear adjustment to the law of one price. Macroecon Dyn 5:533–576

Lucas RE (1988) On the mechanics of economic development. J Monetary Econ 22:3–42CrossRef

Mamingi N (1997) Savings-investment correlations and capital mobility: the experience of developing countries. J Policy Model 19:609–626CrossRef

McKinnon RI (1973) Money and capital in economic development. Brookings Institution, Washington, DC

Miller S (1988) Are saving and investment cointegrated?. Econ Lett 27:31–34CrossRef

Murphy RG (1984) Capital mobility and the relationship between saving and investment in OECD countries. J Int Money Finance 3:327–342CrossRef

Murphy RG (1986) Productivity shocks, non-traded goods and optimal capital accumulation. Eur Econ Rev 30:1081–1095CrossRef

Nell KS, Santos LD (2008) The Feldstein-Horioka hypothesis versus the long-run solvency constraint model: a critical assessment. Econ Lett 98:66–70CrossRef

Obstfeld M (1995) International capital mobility in the 90s. In: Kenen PB (ed) Understanding Interdependence: the Macroeconomics of the open economy. Princeton University Press, Princeton

Obstfeld M, Taylor AM (1997) Nonlinear aspects of goods market arbitrage and adjustment: Heckscher’s commodity points revisited. J Jpn Int Econ 11:441–479CrossRef

Oh K, Kim B, Kim H, Ahn B (1999) Savings-investment cointegration in panel data. Appl Econ Lett 6:477–480CrossRef

Payne JE (2005) Saving-investment dynamics in Mexico. J Policy Model 27:525–534CrossRef

Payne JE, Kumazawa R (2005) Capital mobility, foreign aid, and openness: further panel data evidence from Sub-Saharan Africa. J Econ Finance 29:122–126CrossRef

Perron P (1989) The great crash, the oil price shock and the unit root hypothesis. Econometrica 57:1361–1401CrossRef

Perron P (1990) Testing for a unit root in a time series with a changing mean. J Bus Econ Stat 8:153–162

Phillips PCB, Ouliaris S (1990) Asymptotic properties of residual based tests of cointegration. Econometrica 58:165–193CrossRef

Phillips PCB, Toda HY (1993) Limit theory in cointegrated vector autoregressions. Econometr Theory 9:150–153CrossRef

Rebelo ST (1991) Long run policy analysis and long run economic growth. J Polit Econ 99:500–521CrossRef

Reinhart CM, Tokatlidis I (2003) Financial liberalisation: the African experience. J Afr Econ 12:ii53–ii88CrossRef

Robinson J (1952) The rate of interest and other essays. Macmillan, London

Romer PM (1986) Increasing returns and long-run growth. J Polit Econ 94:1002–1032CrossRef

Roubini N (1988) Current account and budget deficits in an intertemporal model of consumption and taxation smoothing: a solution to the ‘Feldstein-Horioka Puzzle’? Unpublished Manuscript, Yale University

Sachsida A, Caetano A (2000) The Feldstein-Horioka puzzle revisited. Econ Lett 68:85–88CrossRef

Summers LH (1988) Tax policy and international competitiveness. In: Frankel J (ed) International aspects of fiscal policies. University of Chicago Press, Chicago

Taylor AM (2001) Potential pitfalls for the purchasing-power-parity puzzle? Sampling and specification biases in mean-reversion tests of the law of one price. Econometrica 69:473–498CrossRef

Telatar E, Telatar F, Bolatoglu N (2007) A regime switching approach to the Feldstein-Horioka puzzle: evidence from some European countries. J Policy Model 29:523–533CrossRef

Toda HY, Yamamoto T (1995) Statistical inference in vector autoregressions with possibly integrated processes. J Econometr 66:225–250CrossRef

Wong D (1990) What do saving-investment relationships tell us about capital mobility?. J Int Money Finance 9:60–74CrossRef

World Bank (2008) 2008 World development indicators. World Bank, Washington, DCCrossRef

Wu JL (1998) Are budget deficits ‘Too Large’?: the evidence from Taiwan. J Asian Econ 9:519–528CrossRef

Yamada H (1998) A note on the causality between export and productivity: an empirical re-examination. Econ Lett 61:111–114CrossRef

Zivot E, Andrews DWK (1992) Further evidence on the great crash, the oil price shock and the unit root hypothesis. J Bus Econ Stat 10:251–270

Title: Re-examining the saving-investment nexus: threshold cointegration and causality evidence from the ECOWAS
Author: Loesse Jacques Esso
Publication date: 01-08-2012
Publisher: Springer US
Published in: Economic Change and Restructuring / Issue 3/2012
Print ISSN: 1573-9414
Electronic ISSN: 1574-0277
DOI: https://doi.org/10.1007/s10644-011-9115-y