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The Feldstein-Horioka model re-visited for African countries

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Abstract:

We study the relationship between the saving and investment rates for 20 African countries using a long period of data. A high correlation between saving and investment is often taken as evidence of capital immobility. We use the new Ng-Perron unit root tests to examine the stationarity of saving and investment rates. Both Johansen cointegration tests and fractional cointegration tests are used. The results are mixed. The Johansen cointegration tests show that the saving and investment rates are cointegrated only for Rwanda and South Africa. This implies that for the other 18 countries, there is evidence of capital mobility. The fractional cointegration test results are different. The two rates are found to be fractionally cointegrated for the following 12 countries: Algeria, Burundi, Egypt, Morocco, Niger, Rwanda, Senegal, South Africa, Swaziland, Tunisia, Tanzania and Zimbabwe. For Cote d'Ivoire, Kenya, Lesotho and Sierra Leone there is some evidence of capital mobility while the results for Ethiopia, Malawi, Mauritius and Nigeria are mixed.

Document Type: Research Article

DOI: https://doi.org/10.1080/00036840600675679

Affiliations: 1: School of Economics, University of Tasmania, Hobart, TAS 7001, Australia 2: Ritsumeikan Asia Pacific University and Macquarie University, Beppu, Oita 874-8577, Japan

Publication date: 2007-07-01

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