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

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