The Feldstein-Horioka puzzle and the global financial crisis: Evidence from South Africa using asymmetric cointegation analysis
Andrew Phiri ()
No 1701, Working Papers from Department of Economics, Nelson Mandela University
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 2000: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 of capital controls is inadvisable considering that capital is already highly mobile.
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)
New Economics Papers: this item is included in nep-opm
Date: 2017-05, Revised 2017-05
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Persistent link: https://EconPapers.repec.org/RePEc:mnd:wpaper:1701
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