Using a panel structure to discuss the Feldstein-Horioka puzzle in developing countries

The purpose of this paper is to test the implications of current account solvency for the savinginvestment correlation in developing countries. Since solvency is a long-run phenomenon, and given that the power of the standard unit root and cointegration tests is low, we exploit the panel structure of the sample of 29 developing countries. We find evidence that saving and investment are cointegrated and that the current account is stationary. Therefore, the Feldstein-Horioka correlations are not a puzzle in the sense they reflect the intertemporal budget constraint. The same results are obtained for different subsamples (Africa, Asia, and Latin America) and for different periods of time (1960-74 and 1975-96). We, then, suggest that an error correction model should distinguish between the long-run correlation, which reflects the solvency condition, and the short-run correlation, which could measure capital mobility.

The Global Side of the Investment-Savings Puzzle

In this paper we re-examine the long standing and puzzling correlation between national savings and investment in industrial countries. We apply an econometric methodology that allows us to separate idiosyncratic correlation at the country level from correlation at the global level. In a major break with the existing literature, we find no evidence of a long run relationship in the idiosyncratic components of savings and investment. We also find that the global components in savings and investments comove, indicating that they react to shocks of a global nature.

Application de l'hypothèse Feldstein-Horioka aux pays en développement - période 1960-1998.

Rapport de recherche

Heterogeneity, saving-investment dynamics and capital mobility in Latin America

The purpose of this paper is to analyze the dynamics of national saving-investment relationship in order to determine the degree of capital mobility in 12 Latin American countries. The analytically relevant correlation is the short-term one, defined as that between changes in saving and investment. Of special interest is the speed at which variables return to the long run equilibrium relationship, which is interpreted as being negatively related to the degree of capital mobility. The long run correlation, in turn, captures the coefficient implied by the solvency constraint. We find that heterogeneity and cross-section dependence completely change the estimation of the long run coefficient. Besides we obtain a more precise short run coefficient estimate compared to the existent estimates in the literature. There is evidence of an intermediate degree of capital mobility, and the coefficients are extremely stable over time.

A DYNAMIC FRAMEWORK FOR THE RELATIONS BETWEEN FOREIGN EXCHANGE RATES, SAVINGS AND INVESTMENTS

The Meese-Rogoff forecasting puzzle states that foreign exchange (FX) rates are unpredictable. Since one country’s macroeconomic conditions could affect the price of its national currency, we study the dynamic relations between the FX rates and some macroeconomic accounts. Our research tests whether the predictability of the FX rates could be improved through the advanced econometrics. Improving the predictability of the FX rates has important implications for various groups including investors, business entities and the government. The present thesis examines the dynamic relations between the FX rates, savings and investments for a sample of 25 countries from the Organization for Economic Cooperation and Development. We apply quarterly data of FX rates, macroeconomic indices and accounts including the savings and the investments over three decades. Through preliminary Augmented Dickey-Fuller unit root tests and Johansen cointegration tests, we found that the savings rate and the investment rate are cointegrated with the vector (1,-1). This result is consistent with many previous studies on the savings-investment relations and therefore confirms the validity of the Feldstein-Horioka puzzle. Because of the special cointegrating relation between the savings rate and investment rate, we introduce the savings-investment rate differential (SID). Investigating each country through a vector autoregression (VAR) model, we observe extremely insignificant coefficient estimates of the historical SIDs upon the present FX rates. We also report similar findings through the panel VAR approach. We thus conclude that the historical SIDs are useless in forecasting the FX rate. Nonetheless, the coefficients of the past FX rates upon the current SIDs for both the country-specific and the panel VAR models are statistically significant. Therefore, we conclude that the historical FX rates can conversely predict the SID to some degree. Specifically, depreciation in the domestic currency would cause the increase in the SID.

The international impact of productivity shocks

Even though many studies have confirmed the Feldstein-Horioka (1980) finding that savings and investment rates are highly correlated, there is no consensus on the major reason for this correlation. The purpose of this dissertation is to develop theoretical models and calibrate and simulate these to compare their implications to explain the observed time-series comovement between savings and investment in an attempt to show that this high correlation may stem from technological shocks.^ The dissertation is comprised of three studies. The first two studies construct overlapping-generations, two-economy models of saving and investment under conditions of perfect international capital mobility. The second study differs from the first by endogenizing the labor supply. Employing simulations, the models are used to generate time-series for savings and investment. These are then compared with the actual data for specific economies. The models show that productivity shocks produce a high correlation between savings and investment. Further, while the model with exogenous labor supply displays monotonic adjustment, the economy with endogenous labor supply adjusts cyclically.^ The third model, on the other hand, constructs a general equilibrium model for a small open economy. The study is based on two important elements: adjustment costs in investment and endogenous, recursive time preferences. Again, the simulation results show that the model generates, at least in a significant part of the adjustment path, a positive correlation between domestic savings and investment in response to a supply shock. ^

Revisiting the interest rate puzzle

This article makes a connection between Lucas` (1978) asset pricing model and the macroeconomic dynamics for some selected countries. Both the relative risk aversion and the impatience for postponing consumption by synthesizing the investor behaviour can help to understand some key macroeconomic issues across countries, such as the savings decision and the real interest rate. I find that the government consumption makes worse the so-called `equity premium-interest rate puzzle`. The first root of the quadratic function for explaining the real interest rate can produce this puzzle, but not the second root. Thus, Mehra and Prescott (1985) identified only one possible solution.

Searching for missing pieces of the sex-determination puzzle

Little is known of the mechanisms whereby the mammalian indifferent gonad develops into a testis or ovary. In XY individuals, Sry, the mammalian testis-determining gene, is expressed in the pre-Sertoli cells, which then differentiate into Sertoli cells. Other cell types, which include the germ cells, the steroidogenic cells and the connective tissue cells, must then be instructed to develop in a male-specific manner. Although some genes involved in sex-determination and differentiation processes have been identified, we know little of how they interact and cooperate to orchestrate the development of a testis or ovary. We have initiated an expression-screening program designed to identify additional genes, known or novel, which play a role in these processes. This approach is based on our belief that many of the genes we seek will be expressed in a sex-specific manner during the period of sex-determination and differentiation. Most of the genes identified previously are transcription factors and so we aim, in particular, to find genes involved in cell-to-cell communication, signal transduction, and transcriptional regulation, downstream of the differentiation of Sertoli cells. We have used a suppression subtractive-hybridization method to generate male- and female-enriched probes and libraries. Clones are validated as being sex-specific in their expression patterns by array screening and in situ hybridization. Here we report on our progress to date and the general applicability of the approach for studies in other systems. J. Exp. Zool. 290:517-522, 2001. (C) 2001 Wiley-Liss, Inc.

Resolving the puzzle of productive and destructive conflict in culturally heterogeneous workgroups: A communication accommodation theory approach

This study presents an investigation of the communicative behaviors and strategies employed in the stimulation and management of productive and destructive conflict in culturally heterogeneous workgroups. Using communication accommodation theory (CAT), we argue that the type and course of conflict in culturally heterogeneous workgroups is impacted by the communicative behaviors and strategies employed by group members during interactions. Analysis of data from participant observations, non-participant observations, semi-structured interviews, and self-report questionnaires support CA T-based predictions and provide fresh insights into the triggers and management strategies associated with conflict in culturally heterogeneous workgroups. In particular, results indicated that the more groups used discourse management Strategies, the more they experienced productive conflict. In addition, the use of explanation and checking of own and others' understanding was a major feature of productive conflict, while speech interruptions emerged as a strategy leading to potential destructive conflict. Groups where leaders emerged and assisted in reversing communication breakdowns were better able to manage their discourse, and achieved consensus On task processes. Contributions to the understanding of the triggers and the management of productive conflict in culturally heterogeneous workgroups are discussed.