The Feldstein-Horioka hypothesis for African countries: Evidence from recent panel error-correction modelling

摘要

This paper, by applying the recent panel data error-correction modelling developed by Gengenbach et al., Panel error correction testing with global stochastic trends, 2008 University of Maastricht, Working Paper, RM/08/051:1-51 and Gengenbach et al.,Journal of Applied Econometrics, 2016, 31, 982-1004 tests the validity of the Feldstein-Horioka puzzle (1980) in a panel of 27 African countries for the period 1965-2015. Unlike the existing studies in the literature, this paper, for the first time, addresses several important panel data econometric issues such as slope heterogeneity, cross-section dependence, unobservable common factors, non-stationarity and endogeneity that would yield inconsistent and biased estimates of the parameters of interest. Unlike the previous residual-based error-correction modelling that has low power, the Gengenbach et al., Panel error correction testing with global stochastic trends, 2008, University of Maastricht, Working Paper, RM/08/051:1-51 and Gengenbach et al.,Journal of Applied Econometrics, 2016, 31, 982-1004 estimator explicitly considers structural dynamics in modelling a cointegrated panel that allows for the presence of non-stationary unobserved common factors. As the GUW modelling depends on the Pesaran Common Correlated Effects Mean Group Estimator (CCEMG; 2006) and the Chudik and Pesaran Dynamic Common Correlated Effects Mean Group Estimator (DCCEMG; 2015), we report the results based on these estimators. The econometric exercises performed in the paper show that slope heterogeneity; cross-section dependence and non-stationarity are present in the panel data sample used in the estimation. Estimations yield a relatively low magnitude of the savings retention coefficient for the panel members included in the study with a negative error-correction term that is statistically significant at the individual and panel levels. The empirical evidence rejects the presence of the Feldstein-Horioka puzzle in the panel of 27 African countries studied.