Narayan, Rajneel and Narayan, Diviya and Mistry, Jeshikaben (2025) Is savings decoupling from investment in small island developing states? Evidence from a time - varying cointegration approach. Applied Economics, NA . NA. ISSN 0003-6846
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Numerous studies have explored the Feldstein – Horioka puzzle. Despite this, consensus remains absent. This article revisits the puzzle by estimating a time-varying cointegration model using annual data from 1970 to 2022 for countries in the Pacific region. To the degree that the coefficients capture aspects of international capital mobility from the region, the key empirical results we find are as follows. First, we observe that Fiji, PNG, Kiribati, Solomon Islands, and Tonga, have had effective policies in maintaining external balance and ensuring the sustainability of their current account positions. Second, Vanuatu, Samoa, Nauru, Tuvalu, Micronesia, Cook Islands, and Palau stress incidence of very high capital mobility pointing towards weaker policy management targeting current account sustainability. Third, the average time-varying saving retention coefficient for the entire sample shows a steady decline. Fourth, the FH coefficient shows no monotonic trends and often persists below zero. Fifth, evidence of greater capital account convertibility emerges across the Pacific since the early 2000s. Finally, Pacific Island countries with high aid dependence, high remittances (post-2010) and high resource wealth exhibit increasing capital mobility overtime. Policy implications are briefly discussed.
| Item Type: | Journal Article |
|---|---|
| Subjects: | H Social Sciences > HA Statistics H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce H Social Sciences > HF Commerce > HF5601 Accounting H Social Sciences > HG Finance H Social Sciences > HJ Public Finance |
| Divisions: | School of Accounting, Finance and Economics (SAFE) |
| Depositing User: | Diviya Narayan |
| Date Deposited: | 02 Dec 2025 23:57 |
| Last Modified: | 02 Dec 2025 23:57 |
| URI: | https://repository.usp.ac.fj/id/eprint/15220 |
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