The Relationship between Saving and Investment for Japan
Author(s)
Narayan, Paresh
Griffith University Author(s)
Year published
2005
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In this paper, we revisit the saving and investment nexus as postulated by Feldstein and Horioka (FH) [Econ. J. 90 (1980) 314]. We test for cointegration between saving and investment using the recently developed bounds testing approach to cointegration and derive the long-run elasticities using the autoregressive distributed lag modeling approach for Japan over the period 1960-1999. We establish the unit root properties of the data in the presence of structural break(s) using the Zivot and Andrews (ZA) [J. Business Econ. Stat. 10 (1992) 251] and the Lumsdaine and Papell (LP) [Rev. Econ. Stat. 79 (1997) 212] tests. Finally, ...
View more >In this paper, we revisit the saving and investment nexus as postulated by Feldstein and Horioka (FH) [Econ. J. 90 (1980) 314]. We test for cointegration between saving and investment using the recently developed bounds testing approach to cointegration and derive the long-run elasticities using the autoregressive distributed lag modeling approach for Japan over the period 1960-1999. We establish the unit root properties of the data in the presence of structural break(s) using the Zivot and Andrews (ZA) [J. Business Econ. Stat. 10 (1992) 251] and the Lumsdaine and Papell (LP) [Rev. Econ. Stat. 79 (1997) 212] tests. Finally, we ascertain the direction of causation between saving and investment by using the bootstrap approach. Amongst our key results we find that saving and investment are cointegrated for Japan; investment causes saving and saving causes investment; shocks to saving and investment have a permanent effect; and the long-run coefficient on saving is 0.68, implying a moderate rate of correlation. From the latter finding, we believe that there is no puzzle between saving and investment in the case of Japan, a result contrary to FH (1980).
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View more >In this paper, we revisit the saving and investment nexus as postulated by Feldstein and Horioka (FH) [Econ. J. 90 (1980) 314]. We test for cointegration between saving and investment using the recently developed bounds testing approach to cointegration and derive the long-run elasticities using the autoregressive distributed lag modeling approach for Japan over the period 1960-1999. We establish the unit root properties of the data in the presence of structural break(s) using the Zivot and Andrews (ZA) [J. Business Econ. Stat. 10 (1992) 251] and the Lumsdaine and Papell (LP) [Rev. Econ. Stat. 79 (1997) 212] tests. Finally, we ascertain the direction of causation between saving and investment by using the bootstrap approach. Amongst our key results we find that saving and investment are cointegrated for Japan; investment causes saving and saving causes investment; shocks to saving and investment have a permanent effect; and the long-run coefficient on saving is 0.68, implying a moderate rate of correlation. From the latter finding, we believe that there is no puzzle between saving and investment in the case of Japan, a result contrary to FH (1980).
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Journal Title
JAPAN AND THE WORLD ECONOMY
Volume
17
Publisher URI
Copyright Statement
© 2005 Elsevier : Reproduced in accordance with the copyright policy of the publisher : This journal is available online - use hypertext links
Subject
Economic Theory
Applied Economics
Econometrics