A Panel Cointegration study of the long-run relationship between Savings and Investments in the OECD economies, 1970-2007

In this paper we test for the existence of a stable long-run savings– investments relationship in 18OECDeconomies over the period 1970–2007. Although individual modelling provides only very weak support to the hypothesis of a link between savings and investments, this cannot be ruled out as individual time series tests may have low power.We thus construct a new bootstrap test for panel cointegration robust to short- and long-run dependence across units. This test provides evidence of a long-run savings–investments relationship in most of the countries, with USA the most notable exception. However, the elasticities generally smaller than 1 suggest that market imperfections mostly cause only partial home biases.