An Empirical Investigation on the Determinants of the Saving-Investment Interaction


PANOECONOMICUS, vol.58, no.3, pp.343-353, 2011 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 58 Issue: 3
  • Publication Date: 2011
  • Doi Number: 10.2298/pan1103343g
  • Journal Name: PANOECONOMICUS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.343-353
  • Hacettepe University Affiliated: Yes


This study aims to shed light on the Feldstein-Horioka (F-H) puzzle, making use of the potential explanations put forward in the related literature. To this end, the study takes a distinct empirical route, combining a cointegration technique and regression analysis. In the first step, we obtain three definitions for the dependent variable that represent the degree of the interaction between domestic saving and investment (S-I), employing a cointegration analysis for 86 countries in the sample. In the second step, each definition of the dependent variable is regressed on potential explanations for the co-movement of the S-I such as openness, country size, productivity shocks, and real interest rate differentials. After examining a number of potential variables for their explanatory power on this puzzle, however, none of the posited variables are found to be statistically significant determinants of the S-I interaction. The results indicate that the size of the economy, productivity shocks or interest rate differentials have almost no role in explaining the S-I behavior. Further, the findings show that openness has no influence on the S-I interaction, suggesting that it is not plausible to view the S-I correlation as an indicator of international capital mobility as F-H did.