2002 Journal of African Finance & Economic Development article

This posting shows similarities in the wording of the following article by Douglas Agbetsiafa and the works of other, earlier published authors:

Agbetsiafa, Douglas (2002) "Capital Mobility, Saving and Investment Link: Evidence from Sub-Saharan Africa." Journal of African Finance & Economic Development, 5(2): 77-88.

Available at: http://www.afea-jad.com/vol5_2.html

Douglas Agbetsiafa is Professor of Economics and Chair of the Economics Area at Indiana University South Bend (IUSB).  He holds a PhD in Economics from the University of Notre Dame.  That PhD also contains wording that is similar to earlier published authors.

From Agbetsiafa article, page 77:

The saving-investment correlation and its implication for capital mobility across borders has been sharply debated in the literature since the pioneering work of Feldstein and Horioka (1980).

Compare this to:

The relationship between saving and investment has been sharply debated in the literature following the pioneering work of Feldstein and Horioka (1980).

Anoruo, page 46 [First sentence of abstract]

From Agbetsiafa article, page 77:

The seminal empirical finding by Feldsiein and Horioka (1980), that saving and investment are highly correlated, has generated intense debate in the literature.

Compare this to:

The theoretical finding by Feldstein and Horioka (1980) that saving and investment are highly correlated has generated intense debate in the economics literature.

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, at page 46 [first sentence of introduction]

From Agbetsiafa article, page 78:

Feldstein and Horioka 's findings and interpretation of the high correlation coefficients between saving and investment, as evidence of imperfect capital mobility across national boundaries, conflict with conventional wisdom of international capital mobility, which argues that in the absence of financial controls, capital should flow between countries in search of a higher rate of return.

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Feldstein and Horioka interpreted the high correlation between saving and investment as evidence of imperfect capital mobility across national boundaries. This finding is inconsistent with the conventional wisdom, which stipulates that in the absence of financial controls, capital should flow between countries in search of the highest rate of return.

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, at page 46.

From Agbetsiafa article, page 78:

Other researchers strongly disagreed with Feldstein-Horioka's results. Murphy (1984), Obstfeld (1986), Finn (1990), Stockman and Tesar (1991), and Barkoulas, Filizetkin, and Murphy (1 996) have challenged the existence of a high correlation between domestic saving and investment, and contend that capital is internationally mobile. Under this hypothesis, foreign capital will flow into regions or countries with higher real interest rates. Obviously, this has important policy implications, especially for small open economies where increases in domestic saving will not necessarily translate into higher domestic investment under the perfect capital mobility thesis.

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However a number of researchers including Murphy (1984), Obstfeld (1986), Finn (1990), Stockman and Tesar (1991), and Barkoulas, Filizetkin, and Murphy (1996) have challenged the existence of high correlation between saving and investment. These authors surmise that capital is internationally mobile. Under this hypothesis, foreign capital flows to countries with higher real interest rates. Perfect capital mobility, has important policy implications especially for small open economies. In the event that capital were internationally perfectly mobile, increases in domestic saving do not necessarily translate into higher domestic investment because foreign savings generally flow to countries with higher real interest rates.

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, at page 46

[second paragraph within introduction]

From Agbetsiafa article, pages 78-79:

It is worth noting that although existing studies in the literature have furnished insights with regard to the saving- investment relationship, there are a number of concerns about the conceptual and methodological approaches employed in the earlier studies on this issue. First, most of the studies used single equation ordinary least squares regression method to examine the relationship between saving and investment, and are therefore likely to suffer from simultaneous equation bias. Second, studies that employed ordinary least squares regression analysis did so without first examining the time series properties of saving and investment series . As Nelson and Plosser (1982) have shown, most macroeconomic time series data are nonstationary in their levels, b t stationary when differenced. Third, a number of the studies used cross-section data, thereby making it difficult to apply their results to any particular country)'. Fourth, most of the studies in the literature concentrated on the relationship between saving and investment in the developed countries, with little focus on developing countries in the African sub-region.           

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Although studies in the literature have furnished insights with regard to the relationship between saving and investment, the conceptual and methodological approaches utilized in these studies present a number of concerns. First, most of the studies used single equation ordinary least squares (OLS) regression method to examine the relationship between saving and investment. These studies are likely to suffer from simultaneous equation bias leading to fallacious conclusions. Second, studies that employed OLS regression analysis did so without first examining the time series properties (unit roots) of saving and investment. Nelson and Plosser (1982) have shown that most macroeconomic time series data are nonstationary in their levels but stationary when differenced. Third, a number of studies used cross-section data, which makes it difficult, if not impossible, to apply their findings to any particular country. Fourth and finally, most of the studies in the literature concentrated on the relationship between saving and investment in the developed countries …

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53 [Paragraph that spans end of page 46 and start of page 47]

From Agbetsiafa article, page 79:

In particular, we employed unit root tests to determine the order of integration, since variables with the same order of integration must be included in the cointegrating equation. In addition, cointegration tests utilizing the maximum likelihood procedure suggested by Johansen and Juselius (1990) and Johansen (1991) were used to examine the long-run relationship between saving and investment. Finally, the Granger causality tests based on the vector error-correction model (VECM) were conducted to determine the direction of causality between the saving and investment time series data.

 Compare this to:

… variables with the same order of integration in the cointegrating equation. In addition, we undertake the cointegration tests utilizing the maximum-likelihood procedure suggested by Johansen and Juselius (1990) and Johansen (1991) to ascertain the long-run relationship between saving and investment. [1] Finally, the Granger-causality tests based on the vector error correction models (VECM) are conducted to determine the direction of causality between saving and investment series.

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, at page 47.

From Agbetsiafa article, page 79:

A number of researchers including Barkoulas, Filizetkin, and Murphy (1996), Bodman (1995), Gulley (1992), Jansen and Schulze (1996), Taylor (1996), and Miller (1988) have examined the relationship between saving and investment using cointegration techniques. Again, these authors focused mainly on Organization of Economic Cooperation and Development (OECD) countries. The present study employs cointegration-based techniques to extend the saving-investment debate to developing African countries. Such analysis is worthwhile given that the economic experiences of these countries are obviously quite different from those of OECD countries.

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... including Barkoulas, Filizetkin, and Murphy (1996), Jansen and Schulze (1996), Taylor (1996), and Miller (1988) have examined the relationship between saving and investment using cointegration techniques. Again, these authors focused mainly on the OECD countries. As a contribution to the literature, the current study employs cointegration-based techniques to extend the saving-investment debate to the ASEAN countries. Such an analysis is worthwhile given that the economic experiences of the ASEAN countries are arguably very different from those of OECD countries. Notably, the ASEAN economies are often plagued with inefficient public enterprises, deficient infrastructure, tight trade controls, restrictive regulations in the financial sector, poor corporate governance and political uncertainty. Under these conditions, the macroeconomic dynamics that govern the relationship between savings and investment in developing countries could be very different from those that are witnessed in the OECD group of countries.

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, at page 47 [within second column]

From Agbetsiafa article, page 81:

This procedure is preferred to the standard vector autoregressive model because it permits temporary causality to emanate from (i) the sum of the lagged coefficients of the explanatory differenced variables and (ii) the coefficient of the lagged error correction term. In addition, the error correction model allows causality to emerge even if the lagged differences of the explanatory variables are not jointly significant (see Granger (1988), Miller and Russek (1990), Miller (1991), and Garcia and Zapata (1991)].

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The causal relationship between gross saving and investment is explored with Granger-causality test based on VECM. This procedure is particularly attractive over the standard VAR because it permits temporary causality to emanate from (1) the sum of the lagged coefficients of the explanatory differenced variables and (2) the coefficient of the lagged error-correction term. In addition, the VECM allows causality to emerge even if the lagged differences of the explanatory variables are not jointly significant [see Granger (1988), Miller and Russek (1990), Miller (1991), and Garcia and Zapata (1991)].

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, at paragraph that spans pages 48 and 49.

From Agbetsiafa article, page 82:

The null hypothesis of nonstationarity of saving and investment is tested against the alternative hypothesis of stationarity. On the basis of the results shown in Table I, the null hypothesis of nonstationarity cannot be rejected in all cases considered. The results indicate that both saving and investment are not stationary in their levels.

However, after first differencing, the null hypothesis of no unit root is rejected in all of the cases. The nonstationarity of the time series in their levels calls tor the application of co integration procedure to avoid the problem of spurious regression.

Compare this to:

The null hypothesis of nonstationarity of saving and investment is tested against the alternative hypothesis of stationarity. The results indicate that both saving and investment are not stationary in their levels. However, after first differencing, the null hypothesis of no unit root is rejected in all of the cases. In all, the results indicate one order of integration [I(1)] for saving and investment series. The nonstationarity of the time series in their levels calls for the application of cointegration procedure to avoid the problem of spurious regression.

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, at page 49 [under “Empirical results”, within first paragraph]

From Agbetsiafa article, page 84:

The fact that saving and investment are found to be cointegrated suggests that capital is immobile internationally relative to the sample countries, and is consistent with Feldstein and Horioka, Caprio and Howard (1984), Feldstein and Bacchetta (1989), Baxter and Crucini (L993), and

Dooley, Frankel, and Mathieson (1987).

Compare this to:

The fact that saving and investment are found to be cointegrated suggests that capital is immobile internationally relative to the sample countries. This finding that investment and saving are cointegrated, although suggestive, is consistent with Feldstein and Horioka (1980), Caprio and Howard (1984), Feldstein and Bacchetta (1989), Baxter and Crucini (1993), and Dooley, Frankel, and Mathieson (1987).

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, page 49 [see toward end of first paragraph, in second column]

From Agbetsiafa article, page 86:

These results have important policy implications, especially for these and other small open economies where increases in domestic saving will not necessarily translate into higher domestic investment under the perfect capital mobility thesis.

Compare this to:

Perfect capital mobility, has important policy implications especially for small open economies. In the event that capital were internationally perfectly mobile, increases in domestic saving do not necessarily translate into higher domestic investment because foreign savings generally flow to countries with higher real interest rates.

Anoruo, Emanuel (2001) "Saving and Investment Connection: Evidence from the ASEAN Countries", The American Economist 45(1): 46-53, at page 46 [within second paragraph of introduction]