Country Size and Investment-Saving Correlation: A Panel Threshold Error Correction Model

Tsung-Wu Ho () and Ru-Lin Chiu
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Tsung-Wu Ho: Department of Economics, Shih Hsin University
Ru-Lin Chiu: Shih Hsin University

Eastern Economic Journal, 2001, vol. 27, issue 4, 481-490

Abstract: The Feldstein-Horioka puzzle has caused by the substantial disagreement about the interpretation of the saving-retention coefficient. Baxter and Crucini (1993) propose a general equilibrium model to show that the investment-saving correlation will be large when the country-size, measured by GNP, is large. This paper evaluates this argument by examining the threshold effect of country-size on the saving-retention coefficients. Evidence from a panel of 24 OECD countries confirms this hypothesis.

Keywords: Investment; Saving (search for similar items in EconPapers)
JEL-codes: E21 E22 F21 (search for similar items in EconPapers)
Date: 2001
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