Capital mobility in Asia: evidence from bounds testing of cointegration between savings and investment

Abstract

This paper explores the international capital mobility in North Asia (South Korea and Taiwan), South Asia (Indonesia, Malaysia, the Philippines, Singapore and Thailand) and India. In particular, the Feldstein–Horioka puzzle, which states domestic investment and savings are highly and positively correlated, was examined for cointegration using an autoregressive distributed lag bounds testing procedure. The results did not show a positive correlation between savings and investment. There was essentially no relationship at level between savings and investment in all eight cases. Thirteen out of 16 structural break tests or 81.25% indicate no structural breaks. The analysis concluded with certain limitations that there is high capital mobility in the economies under study.

Keywords:

• bounds testing
• capital mobility
• cointegration
• Feldstein–Horioka
• investment
• savings

JEL classifications:

• E2
• E21
• E22

Acknowledgements

The authors gratefully acknowledge and wish to thank the journal editor and referees for valuable comments and constructive assessment of the earlier drafts.

Notes

∗,

∗∗ and

∗∗∗ denote percentage significance levels of 10, 5, and 1, respectively.