Testing the Feldstein Horioka puzzle in Algeria: Maki co-integratioan and hidden causality analysis

The aim of this paper is to test the existence of Feldstein Horioka puzzle in the case of Algerian economy for the period 1970-2019 by examining the link between domestic savings and investments, we use in this paper both the co-integration tests under Gregory-Hansen (1996), Hatemi-J (2008) and Maki (2012) tests in the context of structural breaks, and the symmetric and asymmetric causality (hidden causality) proposed by Hacker-Hatemi (2010) and Hatemi (2012) respectively, the results suggest that there is a co-integration relationship between saving and investment with five endogenous structural breaks, and the saving retention coefficient is equal to 0.324 which means the existence of Feldstein-Horioka puzzle in a weaker form and high capital mobility, on the other hand, the results indicate asymmetric causal relationship between savings and investments.

More Finance or Better Finance in Feldstein–Horioka Puzzle: Evidence from SSA Countries

This study examined the role of financial development in the Feldstein–Horioka (FH) puzzle for 31 sub-Saharan African (SSA) countries for the period 1999–2011. Unlike previous studies that used traditional measures of finance (‘more finance’), we advocated for superior measures of financial development (‘better finance’). The baseline regression shows that ‘more finance’ increases the FH estimate, while ‘better finance’ serves as drag to the same retention coefficients. The reverse of these results was obtained when the baseline regression was extended to account for the interaction between savings and proxies for finance. The results obtained show a considerable improvement in the saving retention coefficient when ‘better finance’ was used as against ‘more finance’. This concretely reinforces the superior role of ‘better finance’ in mobilizing, distributing and utilizing savings for investment within these economies. Based on these findings, domestic resource mobilization can be a veritable vehicle for plugging the substantial investment gap in these SSA economies. However, such policy thrust must be complemented by far-reaching financial reforms.