The F-H puzzle revision in Algeria through the test saving–investment relationship using the co-integration test, linear and nonlinear causality

Abstract

The present research paper explores the relationship between investments, the saving rates and the capital mobility level in the Algerian context during the period 1969 to 2020. Thus, this study evaluates the Feldestein-Horioka puzzle existence through the usage of cointegration test which has been developed by Gregory & Hansen (1996) and Maki (2012). Furthermore, both of the linear (Ganger 1969) and the non-linear causality tests (Diks & Panchenko 2006) have been adopted in this investigation.
Using the FMOLS, DOLS, RCC methods, the findings of the cointegration regression tests reveal that the value of the savings retention coefficient is low, estimated between 0,299 and 0,391. This coefficient shows that only a small part of the Algerian investments can be covered by the domestic savings, whereas the rest is covered by the international capital flows. The causality tests results agree with the cointegration regression results in a way that the unidirectional causality extends from the domestic saving to the domestic investment.