What do Savings-Investment Correlations tell us about the International Capital Mobility of Less Developed Countries?

Mark Holmes ()

Journal of Economic Integration, 2005, vol. 20, 590-603

Abstract:

This paper investigates the extent of capital mobility with respect to less developed countries over the study period 1979-2001. For this purpose, the Feldstein-Horioka equation linking domestic savings and investment is estimated. However, there is a novel empirical approach in this study based on the employment of panel data methods of cointegration testing and estimation of the long-run saving retention coefficient. There is strong evidence of cointegration between domestic savings and investment. Panel estimation based on fully modified ordinary least squares indicates that capital is imperfectly mobile with a long-run saving retention coefficient of about one-third. This low value suggests that capital mobility, though imperfect, is nonetheless quite high. Further estimation based on sub-groups comprising Asian and Latin American countries points towards a similar degrees of capital mobility.

Keywords: LDCs; Capital mobility; Savings; Investment; Panel data; Cointegration (search for similar items in EconPapers)
JEL-codes: C50 F30 F40 O50 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0331

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