The Effect of Savings Rate on Investment in Selected Developed and Developing Countries

Behazad Salmani, Mohammad Mahdi Barghi Oskoee (), Somayeh Razzaghi () and Saber Khodaverdizadeh ()
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Mohammad Mahdi Barghi Oskoee: Associate professor of Economics, University of Tabriz
Somayeh Razzaghi: Ph.D Candidate in Economics, University of Tabriz
Saber Khodaverdizadeh: Ph.D Candidate in Economics, University of Tabriz

Quarterly Journal of Applied Theories of Economics, 2016, vol. 3, issue 3, 45-68

Abstract: In economic literature and especially in international economy literature, Feldstein and Hori Oka puzzle (briefly: F-H puzzle) has special consideration. According to F-H puzzle, in countries which have high international capital mobility, there is a positive but weak meaningful statically correlation between investment rate and domestic saving rate. We investigate threshold impact of saving rate on investment rate in selected developed and developing countries during 1995-2012 due to experiment F-H puzzle. We used Panel Smooth Transition Regression (PSTR) Model in order to study F-H puzzle in these countries. The results of linear relationship test strongly confirm nonlinear relationship between variables of the paper. According to the estimate results, threshold limit of saving calculated (for developed countries: 17.8 and for developing countries: 32) and slope parameter (Transfer Rate) also accounted (for developed countries: 0.1 and for developing countries: 10.3). In developed and developing countries saving rate has positive and meaningful statically effect on investment growth in both regimes. However in developing countries saving rate has less [positive and meaningful statically] effect on investment growth than developed countries. Paper results reject F-H puzzle in both developed and developing countries.

Keywords: Feldstein and Hori Oka puzzle; Developed countries; Developing countries; Panel Smooth Transition Regression (PSTR) model. (search for similar items in EconPapers)
JEL-codes: C23 F21 F32 O16 (search for similar items in EconPapers)
Date: 2016
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