تحرک سرمایه در قفقاز
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|27820||2013||16 صفحه PDF||سفارش دهید||9229 کلمه|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Economic Systems, Volume 37, Issue 2, June 2013, Pages 155–170
This paper examines the degree of capital mobility in the countries of the Caucasus. I estimate a simple model developed in the seminal paper by Feldstein and Horioka (1980). I construct a panel of 6 countries of the Caucasus – Armenia, Azerbaijan, Georgia, Kazakhstan, Russia, and Turkey – and employ a panel cointegration approach. To that end, I make use of the Dynamic OLS (DOLS), Fully Modified OLS (FMOLS), and Pooled Mean Group (PMG) techniques for heterogeneous panels. Preliminary cross-dependency tests reject the presence of cross-sectional dependence. Panel unit root and cointegration tests confirm that investment and saving are non-stationary and cointegrated. The estimated long-run saving retention ratios using DOLS, FMOLS, and PMG are 0.90, 0.73, and 0.83, respectively. These results suggest that capital mobility in the Caucasus is very low. I put these findings in an international context and confirm that the Caucasus is considerably financially restrained compared to other regions. I also look at the country ratings of the Index of Economic Freedom (IEF) and find that my results work well in predicting the IEF rank. Finally, I discuss some implications for the region's policy-relevant issues such as financial integration, human capital mobility, cross-border trading, fiscal and monetary policy, solvency management, responsive consumption smoothing, and recession resistance.
Capital mobility, especially in the case of developing countries, is a valuable area of research – particularly from the practical point of view. The degree of capital mobility sheds light on the historical “policy trilemma” – the choice between monetary independence, capital mobility, and exchange rate stability. With concrete practical relevance, capital mobility is important for determining the optimal fiscal and monetary policy (Mundell, 1968), managing the exchange rate (Levich, 1985), setting the tax induced by inflation (Easterly et al., 1995), and for numerous other purposes as well. There are multiple ways in which capital mobility can be estimated. Caprio and David (1984), Penati and Dooley (1984), Obstfeld (1986), and Calvo et al. (1992) have suggested a simple method of analyzing the aggregate values of capital flows. Others, such as Haque and Montiel (1991), Faruqee (1991), and Reisen and Yeches (1991), claimed that a good methodology for capital mobility estimation is the uncovered interest parity formula. The chief proposition of this method is that expected returns from domestic and foreign assets are equalized via the inter-border arbitrage. Another approach, and the one which I will adopt in this paper, is the Feldstein and Horioka (1980) assertion that a good measurement for capital mobility can be the interplay between domestic investment and saving. The logic behind the Feldstein–Horioka (FH) model is that for a small open economy which is very strongly integrated with the international financial markets, the correlation between domestic investment and saving rates will be minimal, if not completely zero. This occurs because regardless of how much the population decides to save, investment rates are determined on the global markets and are “imported” home. More broadly speaking, an economy for which there exists a perfect co-variation between aggregate investment and saving does not exhibit signs of capital mobility because the country seems to be investing only the capital which has been accumulated within its own borders. If there is a substantial gap between domestic investment and saving, then the country is allowing capital to flow in from abroad, permitting the accounting mismatch. Of course, in a very long run, it is fiscally impossible to continue to maintain that gap, since nations must meet the basic solvency constraint. However, over specific periods of time, it is interesting to observe whether certain countries or regions show any significant tendencies toward capital mobility or financial closeness. In general, the discussion on saving and investment is important in its own right, even if I discard the capital mobility prism. There is little doubt in the conventional belief that domestic saving is an important factor of economic growth. Even the most basic of all economic growth models show that decreasing saving rates have a negative effect on the gross domestic product. The theoretical relationship between saving and growth builds on the long-run congruence of the investment and saving rates. Rising domestic saving improves the investment climate, which in turn spurs the financial dynamic and ultimately leads to higher income growth. A natural response, therefore, is to try to estimate the relationship between saving and investment. Not only for the sole purposes of description and observation, but in order to derive important policy-relevant recommendations and implications. This paper will compute the saving-investment relationship, as a measurement of capital mobility, for six countries of the Caucasus. These are Azerbaijan, Armenia, Georgia, Russia, Kazakhstan, and Turkey. Although Turkey is sometimes geographically excluded from the Caucasus, its economic ties to the region are substantial enough for me to decide to include it in this analysis. To some extent, the same logic applies to the inclusion of Russia and Kazakhstan. While Azerbaijan, Armenia, and Georgia constitute the Caucasian “core”, often referred to as the “Southern Caucasus”, I wish to extend the discussion by bringing Russia, Kazakhstan, and Turkey (all with significant economic ties with the region) into the picture. The Feldstein–Horioka model has been estimated very extensively, using a plethora of various econometric methods, with datasets ranging from OECD countries to the sub-Saharan states. The model itself is quite straightforward and takes the form of the following regression equation: in which I/Y is the ratio of aggregate domestic investment over GDP, S/Y is ratio of aggregate domestic saving over GDP, and εt is the error term. The purpose of the FH regression is to estimate the saving retention ratio −β1. In an extreme case of complete financial autarky, the coefficient is equal to unity. This scenario implies that all investment that occurs in the country of discussion comes from domestically accumulated savings, as no capital at all arrives from abroad. In an alternative extreme case of perfect capital mobility, the coefficient would be zero. This case suggests, rather intuitively, that the country is financing its domestic investment operations only with foreign funds. Both extremes are rare, as theory would predict most economies to demonstrate a saving coefficient of between 0 and 1. Feldstein and Horioka estimated Eq. (1) using long-run averages of cross-sectional regressions of investment over saving for the 16 countries of the OECD. They achieved rather puzzling results – very high coefficients for the investment–saving relationship, which effectively signaled low capital mobility in the OECD. These results, with additions from studies on developing countries, gave birth to the notion of the so-called “Feldstein–Horioka” puzzle – high saving retention ratios for developed nations (indicating low capital mobility) and small coefficients for the developing states (suggesting financial openness and free flow of capital). Economic logic and conventional theory would predict exactly opposite empirical conclusions. This inconsistency was eventually called the “mother of all puzzles” (Obstfeld and Rogoff, 2000). The reason the FH model has been so popular is that it is pretty simple to estimate. The economic logic of the model is straightforward and elegant, with numerous ways to interpret the results for policy purposes. While the interplay of investment and saving opens the door to vivid intellectual debates, there is a natural limit to what the model can offer: in its original set-up, the equation has just one independent variable. There is not much one can do with the original model without extending it to a general equilibrium framework or adding additional regressors. The only reasonable innovations that one can hope for in this stream are either to study the countries and regions that have not been examined before or to experiment with new and more sophisticated econometric methods. It appears to me that this is indeed the narrative of the FH model: as economies in transition continue to break into the international economic and financial arena, we gain empirical access to broader markets and are therefore able to re-apply the seminal model to newer blocks of countries. Also, as the econometric literature progresses, newer techniques allow us to learn more and more about the nuances and shortfalls of the original model and to overcome the limitations with state-of-the-art modeling. The FH research stream has really taken a wild empirical journey from simple OLS regressions to complex equilibrium models and panel cointegration techniques. However, there seems to be a technical as well as a geographical ceiling on how long this stream may continue. This paper effectively follows the described narrative: I attempt to apply the most recent advances in econometrics while simultaneously extending the analysis to a new region. While the methods employed in this paper are indeed recent and proven, there have already been quite a few researchers who experimented with panel cointegration. The true distinction of this study is that, to the best of my knowledge, no previous work has been done on the analysis of capital mobility for the Caucasus as a distinct group. Thus, this paper is important first and foremost as a precedent-setter for capital mobility analysis in the Caucasus, and secondarily as another application of advanced panel cointegration estimation. While Montiel (1994) has estimated the saving ratio for Turkey to be 0.47, the saving retention coefficients for Armenia, Azerbaijan, Georgia, Kazakhstan and perhaps even for Russia will be obtained for the very first time. In general, developing countries should demonstrate some forms of infrastructural imperfections and thus low capital mobility. I therefore base my expectations on this assumption and expect the coefficients of mobility to be closer to unity than to zero. From a bigger picture, this paper aspires to put quantified results on the tables of regional policymakers as countries of the Caucasus continue with their development strategies. It is extremely desirable that this study will spark a new stream of research on this region, as very little empirical work has been done on the nations of the Caucasus until now. In addition, there have not been awfully many applications of panel data econometrics toward this topic, which is flooded with cross-section and time-series papers. Therefore, our application of panel cointegration will also provide some additional variety in the estimation methodologies that this sphere requires.
نتیجه گیری انگلیسی
This paper has applied three recently developed techniques in heterogeneous panel cointegration to the analysis of saving and investment dynamics for the countries of the Caucasus. All three techniques have computed a considerably high, positive relationship between savings and investment. These results provide strong empirical evidence for the lack of capital mobility in the Caucasus. Putting the numbers in an international context gives even more support to our proposition as the Caucasus falls noticeably behind Asia, Africa, and middle-income countries. I perform a robustness check by comparing this paper's estimates with the Index of Economic Freedom and find a perfect correlation between the two sets of results. My findings imply that the Caucasus is integrated poorly with the global financial markets; policymakers possess monetary independence and conduct fixed or semi-fixed monetary policy; mobility of human capital is quite low; there exists a substantial home-country portfolio formation bias due to high political and currency risks of holding overseas financial assets; national governments design current account targeting policies that indirectly affect the saving-investment interplay; financial markets impose a strong long-run solvency constraint; the consumption smoothing reaction to exogenous production shocks is poor; capital immobility has helped the region go through the recent recession relatively undamaged.