Savings and investments in the OECD a panel coint

Authors: Francesca Di Iorio Stefano Fachin

Publish Date: 2013/06/19

Volume: 46, Issue: 4, Pages: 1271-1300

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Abstract

In this paper we test for the existence of a stable longrun 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 longrun dependence across units This test provides evidence of a longrun savings–investments relationship in most of the countries with USA the most notable exception However the elasticities generally smaller than 1 suggest that market imperfections mostly cause only partial home biasesThis is a completely revised version of a paper previously circulated with a similar title Research supported by the Department of Political Sciences of the University of Naples Federico II University of Rome ‘La Sapienza’ and MIUR A GAUSS programme implementing the bootstrap panel cointegration test can be downloaded from http//w3uniroma1it/fachin/ Research supported by ‘La Sapienza’ grant n 2011C26A1145RM and MIUR PRIN grant 2010J3LZEN We are grateful to participants to seminars at the University of Rome ‘Tor Vergata’ and the Treasury Department of the Italian Ministry of Economy and Finance for comments and suggestions to Massimo Franchi for many discussions and to Yoosoon Chang and Chi Mai Nguyen for sharing their programmes for the computation of the IV test Special thanks to two anonymous referees for their careful and extremely helpful reports The usual disclaimers applyThe vector eta itprime =u itxv it is an independent component stationary ergodic process with zero mean and finite variance see Phillips and Ouliaris 1990 henceforth PO condition C1 and Eq 3 Hence eta it=sum j=infty infty A ijxi itj with sum j=infty infty left A ijright infty and A i1=sum j=infty infty A ij where the xi itjprime s are iid 0Sigma i with Sigma i positive definite All stationary ARMA processes satisfy these conditions

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