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Saving and investment causality: implications for financial integration in transition countries of Eastern Europe
Kristianstad University, School of Health and Society, Avdelningen för Ekonomi och arbetsliv.ORCID iD: 0000-0003-0447-9349
2017 (English)In: International Economics and Economic Policy, ISSN 1612-4804, E-ISSN 1612-4812Article in journal (Refereed) Epub ahead of print
Abstract [en]

Numerous studies have been devoted to the Feldstein-Horioka puzzle.However, no consensus has been reached in the literature. This paper examines the causal relationship between domestic saving and investment rates in six transition economies (Estonia, Latvia, Lithuania, Ukraine, Belarus, and Russian Federation). Theoretically, the presence of any type of causal structure between these two series in a country implies that national capital markets are not open; hence capital flows are impeded. Therefore, the paper employs the bootstrap panel Granger causality approach that accounts for both cross-sectional dependence and slope heterogeneity across countries to determine the causal  structure. The findings show that there is a causality between the series, thereby implying that capital is not perfectly mobile internationally in any of the countries under review, but it is more mobile in Estonia, Russian  Federation, and Latvia than Lithuania, Belarus, and Ukraine. The underdevelopment of financial markets in these countries as well as the demand for foreign capital to finance domestic investment projects and the lack of adequate economic and financial reforms might have driven  these results.

Place, publisher, year, edition, pages
2017.
Keyword [en]
Capital mobility, Saving, Investment, Eastern Europe, Causality
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:hkr:diva-17074DOI: 10.1007/s10368-017-0390-6OAI: oai:DiVA.org:hkr-17074DiVA: diva2:1130594
Available from: 2017-08-10 Created: 2017-08-10 Last updated: 2017-08-10Bibliographically approved

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CiteExportLink to record
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Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf