The Saving-Investment Correlation and Capital Mobility in Asia
This study assesses financial integration and international capital mobility in the Asian region by adopting the Feldstein-Horioka criterion based on the relationship between saving and investment. The analysis is carried out in two stages. The initial part of the analysis follows the standard pr...
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| Main Author: | |
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| Format: | Thesis |
| Language: | English English |
| Published: |
2004
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| Subjects: | |
| Online Access: | http://psasir.upm.edu.my/id/eprint/6044/1/FEP_2004_1.pdf |
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| Summary: | This study assesses financial integration and international capital mobility in the
Asian region by adopting the Feldstein-Horioka criterion based on the
relationship between saving and investment. The analysis is carried out in two
stages. The initial part of the analysis follows the standard procedure by
analysing the saving retention coefficient. Using the standard time-averaged
cross-sectional regression model originally employed by Feldstein and Horioka
as a benchmark, a number of alternative estimation regression models are
employed in this study. Of particular reference is the panel regression model
proposed by Kao and Chiang (1 999) emphasized in this study. Panel unit root and
panel cointegration tests that have been shown to have higher testing power are
used to analyse the data. The second part of the study introduces an innovation by
tracking the changes in the parameters over time to obtain evidence on whether
capital mobility and financial market integration have increased over time.
The empirical analysis covers 20 Asian countries at different stages of financial
and economic development over the period from 1980 to 1999. The sample
countries are also divided into four sub-regional samples so as to enable a
comparative view of regional differences in capital mobility. The findings
indicate that the close association between saving and investment is a robust
empirical regularity and is consistent with other studies reported in the literature.
The results of the different estimation methods including the panel regression
models, confirm that the saving retention coefficient is statistically and
significantly different from zero. This shows that the Asian region as a whole
rejects the notion of perfect capital mobility over the sample period.
Generally capital mobility is low in the Asian countries although there has been a
gradual increase in capital mobility over time as shown by the changes in the
saving retention coefficients. However there are regional differences with the
ASEAN 5 region including Japan and Korea showing relatively higher capital
mobility than the other regions. |
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