An Exploration of the Long-Run Relationship between Saving and Investment in the Developing Economies : A Tale of Latin American Countries

Note: The following is a description of the paper and not the actual abstract. Following the study of Feldstein and Horioka in 1980, economists have been studying the relationship between saving and investment with renewed vigor. Most of the recent studies have studied the relationship in the context of capital mobility in the industrialized countries. However, even though data are now available for developing countries, there are hardly any studies which focus on developing countries. Our paper studies the relationship for the following ten Latin American countries: Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Panama and Venezuela. We use the cointegration methodology. Our results show that only for four countries, Ecuador, Honduras, Jamaica and Panama, there is a long-run relationship between saving and investment. The other six countries may face macroeconomic instability in the long run because of the divergence between saving rate and investment rate