The relationship between national saving and investment in Latin America and the Caribbean

Eduardo Cavallo and Mathieu Pedemonte

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Using panel cointegration techniques and a comprehensive data set covering the period 1980–2013, this paper finds a positive and significant correlation between national saving and domestic investment rates in Latin America and the Caribbean. The estimated correlation is approximately 0.39; that is, for every one percentage point of GDP increase in national saving, domestic investment increases by 0.39 percentage points, on average. There are, however, three nuances to the headline result: (i) the estimated correlation has been declining over time; (ii) the regional average hides a large degree of intraregional heterogeneity; and (iii) the estimated coefficient is largest among the biggest economies in the region. Low national saving rates remain a binding constraint for capital accumulation in Latin America and the Caribbean.

Keywords: saving; investment; Feldstein-Horioka puzzle; panel cointegration (search for similar items in EconPapers)
JEL-codes: C23 E2 F36 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-04-01
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Published in Economía, 1, April, 2016, 16(2), pp. 29 - 54. ISSN: 1529-7470

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http://eprints.lse.ac.uk/123167/ Open access version. (application/pdf)

Related works:
Journal Article: The Relationship between National Saving and Investment in Latin America and the Caribbean (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:123167

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