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Journal of African Economies Advance Access originally published online on October 20, 2006
Journal of African Economies 2007 16(3):393-405; doi:10.1093/jae/ejl039
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© The author 2006. Published by Oxford University Press on behalf of the Centre for the Study of African Economies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Saving, Investment and Capital Mobility in African Countries1

Olumuyiwa S. Adedeji and John Thornton*

Fiscal Affairs Department, International Monetary Fund, Washington DC, USA

* Address for correspondence: Dr. John Thornton, Assistant Director, Fiscal Affairs Department, International Monetary Fund, 700 19th Street N.W., Washington DC 20431, USA. E-mail: jthornton{at}imf.org

Recently developed panel co-integration techniques are applied to data for six African countries to test the Feldstein–Horioka approach to measuring capital mobility. The results suggest three conclusions: savings and investment in panel data are non-stationary series and they are co-integrated; capital was relatively mobile in the African countries during 1970–2000, with estimated savings–retention ratios of 0.73 (FMOLS), 0.45 (DOLS), 0.51 (DOLS with heterogeneity) and 0.39 (DOLS with cross-sectional dependence effects); and there was a marked drop in the savings–retention ratio from 1970–85 to 1986–2000. The results could be interpreted as indicating that capital mobility in African countries has increased, reflecting the implementation of market-orientated reforms, including the privatisation and rationalisation of the public sector, and the partial liberalisation of their exchange rate regimes and financial systems.

JEL classification: F31, F32, F36

1 The views expressed in this paper are those of the authors and should not be attributed to the International Monetary Fund. We are grateful to two referees for comments that improved this paper.


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