Saving Investment Association in Turkey

The aim of this paper is to investigate the domestic saving-investment relation in Turkey. In their very effective paper Feldstein and Horioka (1980) (FH hereafter) states that presence of relationship between national saving and investment would not be expected under the perfect capital mobility. In the case of perfect capital mobility, savings follow wherever the highest return is and the relations between domestic saving and investment disappear. Many empirical studies found that most of open economies have high saving investment association. Turkey experienced full capital account liberalization in 1989 and hence is like a welldesigned laboratory to analyze the saving-investment relation by considering FH point of view. To analyze corresponding relation we use two different data sets, private investmentsaving, and total investment-saving over the period 1984Q1-2007Q3. By using two different data sets we try to see change in corresponding relation when we reduce, by deducing public saving and investment from total saving and investment, the effects of solvency constraint and the balance of payment targeting. We employ ARDL bound testing procedure. Also existence of structural breaks in corresponding association is analyzed by using Bai and Perron (2003) procedure. We found hardly any evidence for structural break in corresponding relation as indicated by FH. We found strong long-run relationship between total investment and saving. On the other hand there is no significant long-run relation between private saving and investment. These two conflicting result may because of the balance of payment targeting and/or solvency constraint. Keyword: saving-investment, capital mobility, structural break, Feldstein-Horioka puzzle, cointegration JEL classification: C22; E21, E22, F21