The saving investment relation: a panel data approach

Abstract

Numerous studies have confirmed the initial 1980 finding of Feldstein and Horioka of a high positive correlation between saving and investment, a result that is difficult to reconcile with the increasing integration of financial markets. This current study re-examines the correlation between saving and investment with a panel data approach. The empirical analysis concerns 19 OECD countries over the period 1970–1998. Stability tests have led to the identification three periods: 1970–1980, 19817ndash;1990 and 1991–1998 and estimated results show that, when a country-specific effect is introduced, there is no correlation between private saving and national investment and that there is high correlation between public saving and investment.