The Feldstein-Horioka Puzzle and the Global Financial Crisis: Evidence from South Africa using Asymmetric Cointegration Analysis

Andrew Phiri

Economia Internazionale / International Economics, 2019, vol. 72, issue 2, 139-170

Abstract: In this study we examine the effects of the 2007-2008 global financial crisis on the Feldstein-Horioka coefficient for South Africa using momentum threshold cointegration and error correction techniques applied to quarterly national savings-investment time series collected between 1960:Q1 and 2017:Q1. Our empirical strategy consists of segregating the data into three samples; one corresponding to the full sample (1960:Q1 – 2016:Q4), another corresponding to the pre-crisis period (1960:Q1-2008:Q3) and the last corresponding to the post-crisis period (2008:Q4-2016:Q4). Our empirical results validate asymmetric cointegration effects for both the full and the pre-crisis periods while only accepting a linear cointegration relation for the post-crisis period. The saving-retention coefficient estimates produced are 0.59 (significant), 0.64 (significant), and 0.22 (insignificant) for the full, pre-crisis and post-crisis periods, respectively. These results imply that international capital mobility has increased in the post-crisis period and this may be primarily due to the effects of a redirection of private capital flows by investors to safe haven assets. Therefore policy plans of further relaxing capital controls is inadvisable considering that capital is already highly mobile. Il puzzle Feldstein-Horioka e la crisi finanziaria globale: evidenze dal Sud Africa utilizzando un’analisi di cointegrazione asimmetrica In questo studio esaminiamo gli effetti della crisi finanziaria globale del 2007-2008 sul coefficiente Feldstein-Horioka tramite l’utilizzo di metodologie a cointegrazione e di tecniche error correction (1960:Q1-2016:Q4. La nostra strategia empirica consiste nell’organizzare i dati in tre campioni: il primo corrisponde al campione completo (1960:Q1-2016:Q4), il secondo al periodo pre-crisi (1960:Q1-2008Q3), il terzo al periodo post-crisi (2008:Q4-2016:Q4). I risultati empirici avvalorano gli effetti asimmetrici di cointegrazione sia per il campione completo che per quello relativo al periodo pre-crisi, mentre viene evidenziata solo una relazione di cointegrazione lineare per il periodo post-crisi. Questi risultati implicano che la mobilità internazionale dei capitali è aumentata nel periodo post-crisi e ciò può essenzialmente essere dovuto agli effetti del ri-orientamento dei flussi di capitali privati da parte degli investitori per mettere al sicuro i patrimoni. Si sconsiglia pertanto di pianificare ulteriori controlli di rilascio dei capitali, considerando che questi sono già altamente mobili.

Keywords: Investment; Savings; Feldstein-Horioka Puzzle; Threshold Cointegration; Threshold Error Correction Model; Sub-Saharan Africa; South Africa (search for similar items in EconPapers)
JEL-codes: C22 C52 F21 F41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: The Feldstein-Horioka puzzle and the global financial crisis: Evidence from South Africa using asymmetric cointegation analysis (2017)
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