Savings and investments in the OECD, 1970–2007: A test of panel cointegration with regime changes

In this paper we test for the existence of a long-run relationship between investment and savings (the Feldstein–Horioka puzzle) in a panel of 18 OECD countries, 1970–2007, allowing for heterogenous breaks in the coefficients. For this purpose we develop a bootstrap panel cointegration with breaks robust to cross-section dependence, shown by simulation to enjoy good size and power properties provided that some care is applied in its use. The tests suggest that, even allowing for parameter shifts in the countries where capital control regulations changed in the sample period, there is no evidence of an investment–savings long-run relationship for the panel as a whole.