Abstract
This paper tries to empirically examine the validity of Feldstein-Horioka puzzle in the presence of twin deficits for Pakistan over the period 1976 to 2010 using autoregressive distributed lag (ARDL)-bounds testing approach to cointegration. Our finding reveals a positive association between the current account balance and budget deficit in short-as well as in long-run. Toda-Yamamoto (1995) causality test also supports the existence of twin deficits. We also find a negative relationship between current account balance and investment in short-as well as in long-run. The long-run coefficient of investment is -0.75 which implies a high degree of capital mobility by rejecting the Feldstein-Horioka puzzle in case of Pakistan. However, the short-run coefficient of investment is negative but less than one (i.e. -0.46) which provides support for the moderate validity of Feldstein-Horioka puzzle but only in the short-run.
Article Details
- Year: 2012
- Volume: 33
- Issue: 3
- Pages: 1 - 36
- Accepted: 06.08.2012
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DOI:
https://doi.org/10.5281/zenodo.21078636 -
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How to Cite?
Muhammad Arshad Khan, Sumaira Saeed (2012). Twin Deficits and Saving-Investment Nexus in Pakistan: Evidence from Feldstein-Horioka Puzzle. Journal of Economic Cooperation and Development, 33(3), 1-36. https://doi.org/10.5281/zenodo.21078636
