Jamilov, Rustam (2012): Capital mobility in the Caucasus.
Download (237Kb) | Preview
This paper examines the degree of capital mobility in the countries of the Caucasus. We employ a simple model developed in the seminal paper by Feldstein and Horioka (1980). First, we estimate the model using conventional time-series econometrics in order to capture the short-run dynamics. Then, we construct a panel of 6 countries of the Caucasus – Azerbaijan, Armenia, Georgia, Kazakhstan, Russia, and Turkey – and obtain the long-run estimates by applying a panel cointegration approach. To that end, we make use of the fully modified ordinary least squares (FMOLS) estimation method for heterogeneous panels, developed by Pedroni (2000). We estimate the long-run saving retention ratio to be quite high, showing that capital mobility in the Caucasus is considerably low. In addition, we also look at the country ratings of the Index of Economic Freedom to compare our results with the official rankings in market openness. We also put our findings in an international context, and confirm that Caucasus is relatively financially restrained. Finally, we discuss the implications of our results for the region's policy-relevant issues such as financial integration, human capital mobility, across-border trading, fiscal and monetary policy, exchange rate volatility, solvency management, responsive consumption smoothing, and recession resistance.
|Item Type:||MPRA Paper|
|Original Title:||Capital mobility in the Caucasus|
|Keywords:||Capital mobility; Feldstein-Horioka regression; Caucasus; Saving-investment correlation; Time-series; FMOLS panel cointegration|
|Subjects:||F - International Economics > F3 - International Finance > F32 - Current Account Adjustment; Short-Term Capital Movements
F - International Economics > F3 - International Finance
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Rustam Jamilov|
|Date Deposited:||18. Apr 2012 13:48|
|Last Modified:||13. Feb 2013 01:41|
Afxentiou, P.C. and Serlitis, A., (1993) “International Capital Mobility and the Long Run Investment and Saving in Canada”, Economia-Internazionale, 46 147–67.
Alexakis, A. and Apergis, S., (1992) ‘The Feldstein–Horioka Puzzle and Exchange Rate Regimes: Evidence From Cointegration Tests, Journal of Policy Modelling, 16, 459–72.
Amirkhalkhali, S. and Dar, A.A. (1993) “Testing for Capital Mobility: A Random Coefficients Approach”, Empirical Economics, 18, pp. 523-541.
Aizenman, J., Ito, H. (2012) Trilemma Policy Convergence Patterns and Output Volatility. NBER Working Paper n. 17806
Apergis, Nicholas and Tsoumas, Chris (2009). A Survey on the Feldstein-Horioka Puzzle: What Has Been Done and Where We Stand. Research in Economics, Vol. 63, pp. 64-76.
Baxter, M., and Crucini, M. J., (1993) Explaining Saving-Investment Correlations, The American Economic Review Vol. 83, No. 3, pp. 416-436
Bangake, C., and Eggoh, J. (2011) “The Feldstein-Horioka puzzle in African countries: a panel cointegration analysis,” Economic Modeling, v. 28 n. 3, 939-947
Bahmani-Oskooee, M., Chakrabarti, A., (2005) “Openness, size, and the saving-investment relationship,” Economic Systems, 29 283-293
Barro, R.J., Mankiw, N.G., Sala-I-Martin, X., (1995). “Capital Mobility in neoclassical models of growth.” American Economic Review, 85, pp. 103-115
Bayounmi, T., (1990) Saving-Investment correlations: immobile capital, government policy, or endogenous behavior? IMF Staff Papers 37, 350-387
Caprio, Gerard, Jr., and David H. Howard. (1984). "Domestic Saving, Current Accounts, and International Capital Mobility." International Finance Discussion Paper 244. Federal Reserve System, Board of Governors, Washington, D.C.
Calvo, Guillermo, Leonardo Leiderman, and Carmen Reinhart. (1992). "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors." IMF Working Paper wp/92/62. International Monetary Fund, Washington, D.C.
Cyrille, S. M., (2010) “Saving-Investment Correlation and Capital Mobility in Sub-Saharan African Countries: A Reappraisal through inward and outward Capital Flows’ Correlation,” International Journal of Economics and Finance, v. 2 n. 2, 97-106
Coakley, J., Hasan, F., Smith, R., (1996) Current account solvency and the Feldstein-Horioka puzzle. Economic Journal. 106, 620-627
Coakley, J., Kulasi F., Smith R., (1998) “The Feldstein-Horioka Puzzle and Capital Mobility: A Review,” International Journal of Finance and Economics, n. 3, pp. 169-188.
Coakley, J., Hasan, F., Smith, R. (1999) Saving, Investment, and Capital mobility in LDCs. Review of International Economics. 7, pp. 632-640
Coakley, J., Fouertes, A., Spagnolo, F., (2004) “Is the Feldstein-Horioka puzzle history?” Manchester School 72, pp. 569-590.
Dickey, D.A., Bell, W.R., Miller, R.B., (1986). Unit Roots in time eries models: tests and implications. The American Statistician, 40, 12-26.
Easterly, W. R.; Mauro, P.; Schmidt-Hebbel, K. Money demand and seigniorage maximizing inflation. Journal of Money, Credit, and Banking, v. 27, n. 2, p. 583-603, 1995.
Faruqee, Hamid. 1991. "Dynamic Capital Mobility in Pacific Basin Developing Countries: Estimation and Policy Implications." IMF Working Paper wp/91/115. International Monetary Fund, Washington, D.C.
Feldstein, M., (1983) ‘Domestic Saving and International Capital Movements in the Long Run and the Short Run’, European Economic Review, 21, pp. 129–51.
Feldstein, Martin, and Charles Horioka (1980) "Domestic Saving and International Capital Flows." Economic Journal 90, pp. 314-29.
Feldstein, M. and Bachetta, P., (1991) ‘National Saving and International Investment’ in D. Bernheim and J. Shoven (Eds.), National Saving and Economic Performance, Chicago: University of Chicago Press, pp. 201–26.
Feldstein, M., (1994) Tax policy and international capital flows. Review of World Economics, Vol. 130, N. 4, pp. 675-697
Fisher, R. A. (1932). Statistical Methods for Research Workers, Oliver & Boyd, Edinburgh, 4th Edition.
Haque, Nadeem, and Peter J. Montiel. (1991). "Capital Mobility in Developing Countries: Some Empirical Tests." World Development 19, pp. 1391-98.
Im, K.S., Pesaran, M.H., Shin, Y., (2003). Testing for Unit Roots in Heterogeneous panels. Journal of Econometrics 115, 53-74
Jansen, W. Jos, (2000). "International capital mobility: evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 507-511
Kao, C., Chiang, M., (1999) "On the Estimation and Inference of a Cointegrated Regression in Panel Data," Center for Policy Research Working Papers 2, Center for Policy Research, Maxwell School, Syracuse University.
Kim, S.H., (2001). The saving-investment correlation puzzle is still a puzzle. Journal of International Money and Finance 20. 1017-1034
Kim, H., K-Y Oh, Jeong, C.W. (2005) Panel cointegration results on international capital mobility in Asian Economies. Journal of International Money and Finance, 24, pp. 71-82
Kao, C. (1999) Spurious regression and residual-based tests for cointegration in panel data when the cross-section and time series dimensions are comparable. Journal of Econometrics 90, 1-44.
Kao, C., and Chiang, M. (2000): On the Estimation and Inference of a Cointegrated Regression in Panel Data, Advances in Econometrics, vol. 15, pp. 179-222.
Kaplan, M., Kalyoncu, H., (2011) Measuring the level of international capital mobility for MENA countries. Journal of Economic and Social Studies. Vol. 1, N. 1, 25-32
Levich, R. M. (1985) Empirical studies of exchange rates: price behavior, rate determination and market efficiency. In: Jones, R. W.; Kenen, P. B. (eds.), Handbook of international economics, v. II. Amsterdan: Elsevier.
Maddala, G.S., & Wu, S. (1999). A Comparative study of unit root tests with panel data and new simple test. Oxford Bulletin of Economics and Statistics, 61, 631-652.
Montiel, J.P., (1994) “Capital mobility in developing countries: some measurement issues and empirical estimates.” The world Bank Economic Review, vol 8. n. 3, 327-342
Mundell, R. A. (1968) International economics. New York: MacMillan
Murthy, N.R.V. (2009). The Feldstein–Horioka puzzle in Latin American and Caribbean countries: a panel cointegration analysis. Journal of Economics and Finance, 33(2), 176-188
Obstfeld, M., (1986) "Capital Mobility in the World Economy: Theory and Measurement." Carnegie-Rochester Conference Series on Public Policy 24. Special issue of Journal of Monetary Economics.
Obstfeld, M. and Rogoff, K., (2000) ‘The six major puzzles in international macroeconomics: Is there a common cause?,’ NBER Macroeconomics Annual, 15, 340-90.
Penati, Alessandro, and Michael Dooley. (1984) "Current Account Imbalances and Capital Formation in Industrial Countries, 1949-81.' IMF Staff Papers 31(1, March):1-24.
Pedroni, P. (1995). Panel cointegration; asymptotic and finite sample propertiesof pooled time series tests, with an application to the PPP hypothesis. Indiana University Working Papers in Economics, No.95-013.
Pedroni, P., (1999) Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61, 653–670
Pedroni, P., (2000) Fully modiﬁed OLS for heterogeneous cointegrated panels. Advances in Econometrics. 15, 93–130.
Pedroni, P., (2004) “Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis,” Econometric Theory, v. 20 n. 3, pp. 597–625.
Pesaran, M.H. and Smith, R.P., (1995) “Estimating long run relationships from dynamic heterogeneous panels,” Journal of Econometrics, 68, pp. 79-113
Reisen, Helmut, and Helene Yeches. (1991). "Time-Varying Estimates on the Openness of the Capital Account in Korea and Taiwan." OECD Development Centre Technical Paper 42. Organization for Economic Cooperation and Development, Paris.
Sarno, L., Taylor, M.P., (1998) Saving-Investment Correlations: Transitory Versus Permanent. The Manchester School of Economic and Social Studies, Vol. 66. Isse 0, pp. 17-38
Summers, L.H., (1988). "Tax Policy and International Competitiveness." International Aspects of Fiscal Policies, National Bureau of Economic Research, Chicago: University of Chicago Press. 349-375
Tesar, L.L., (1991) ‘Saving, Investment and International Capital Flows’, Journal of International Economics, 31, 55–78.
Tesar, L.L., (1993) International risk-sharing and non-traded goods. Journal of International Economics. 35, pp. 69-89