Reexamining the National Savings-Investment Nexus Across Time and Countries
IMF Working Papers, July 10, 2020
Source details
- Canonical URL
- Reexamining the National Savings-Investment Nexus Across Time and Countries
Other formats
Bibliographic details
- Authors: Antonio David, Carlos Goncalves, Alejandro M. Werner
- Published: July 10, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513548579.001
Core research question and approach
- Revisits the Feldstein-Horioka (FH) finding that domestic savings and investment are positively correlated across countries and through time; notes FH was unveiled "40 years ago."
- Uses instrumental variables techniques to identify causality from savings to investment.
- Identification strategy: population age structure influences savings but not total investment directly; the share of adults in the [35-49] years of age bracket is used as an instrument for savings.
- Reports that the estimates pass weak-instruments robust inference.
Key findings
- Domestic savings and investment are positively correlated across countries and through time, consistent with the original FH observation.
- Causal interpretation: an exogenous rise in savings increases investment (identified via IV).
- Heterogeneity by country group:
- The causal relationship holds in the full sample of countries.
- The causal relationship holds for emerging and developing economies.
- For advanced economies, there is evidence that the positive association is due to endogeneity bias (i.e., not robustly causal in that subsample).
Methodology and identification
- Instrument: share of adults in the [35-49] years of age bracket as an instrument for savings.
- Estimation techniques: instrumental variables methods with inference robust to weak instruments.
- Emphasis that an interpretation based on market failures is more consistent with observed data patterns than alternative hypotheses.
Subjects and keywords (as supplied)
- Subjects: Balance of payments, Capital account, Domestic savings, Econometric analysis, Estimation techniques, Income, National accounts, Population and demographics
- Keywords: Capital account, Causality, Domestic savings, Estimation techniques, Feldstein-Horioka Puzzle, Global, Income, investment, Investment, investment rate, labor-saving technology, population share affect investment, saving, saving variable, Savings, savings rate, savings-investment correlation, WP
Content in this bundle
- Working Paper