A Panel Cointegration Study of the Long-Run Relationship between Savings and Investments in the OECD Economies, 1970-2007

Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 3

31 Pages Posted: 28 Feb 2011

See all articles by Francesca Di Iorio

Francesca Di Iorio

Istituto Nazionale di Statistica

Stefano Fachin

University of Rome I

Date Written: February 1, 2011

Abstract

In this paper we test for the existence of a long-run savings-investments relationship in 18 OECD economies over the period 1970-2007. Although individual modelling provides only very weak support to the hypothesis of a link between savings and investments, this cannot be ruled out as individual time series tests may have low power. We thus construct a new bootstrap test for panel cointegration robust to short- and long-run dependence across units. This test provides evidence of a long-run savings-investments relationship in about half of the OECD economies examined. The elasticities are however often smaller than 1, the value expected under no capital movements.

Keywords: Savings, Investments, Feldstein-Horioka puzzle, OECD, Panel

JEL Classification: C23, C15, E2

Suggested Citation

Di Iorio, Francesca and Fachin, Stefano, A Panel Cointegration Study of the Long-Run Relationship between Savings and Investments in the OECD Economies, 1970-2007 (February 1, 2011). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 3, Available at SSRN: https://ssrn.com/abstract=1769554

Francesca Di Iorio (Contact Author)

Istituto Nazionale di Statistica ( email )

ISTAT
Via C. Balbo 16
I-00184 Roma
Italy

Stefano Fachin

University of Rome I ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

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