The Feldstein--Horioka puzzle in South Africa: A fractional cointegration approach
Luis Gil-Alana (),
Christophe André (),
Rangan Gupta (),
Tsangyao Chang () and
Omid Ranjbar ()
The Journal of International Trade & Economic Development, 2016, vol. 25, issue 7, 978-991
The Feldstein--Horioka (FH) puzzle, that is the strong correlation between saving and investment in a world where obstacles to capital mobility are limited, has been studied extensively since it was exposed in 1980. Even though the theoretical and empirical literature has examined many of its potential causes, the puzzle persists. This paper aims at shedding further light on the issue by investigating the relationship between saving and investment in South Africa since 1946 using fractional integration and cointegration techniques to account for high persistence in the series. We find evidence of fractional cointegration between saving and investment, indicating some degree of persistence in the gap between the two variables. We also find a structural break in saving and investment ratios to GDP around 1980, which roughly coincides with the start of a financial deregulation process in South Africa. While fractional cointegration holds before the break, it does not thereafter. In other words, while the FH puzzle is observed before the start of financial deregulation, it subsequently disappears. This suggests that financial deregulation may have loosened the link between saving and investment.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
Working Paper: The Feldstein-Horioka Puzzle in South Africa: A Fractional Cointegration Approach (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:25:y:2016:i:7:p:978-991
Ordering information: This journal article can be ordered from
Access Statistics for this article
The Journal of International Trade & Economic Development is currently edited by Professor Pasquale Sgro
More articles in The Journal of International Trade & Economic Development from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().