Panel cointegration results on international

capital mobility in Asian economies

Hongkee Kim
a,
*
, Keun-Yeob Oh
b
,
Chan-Woo Jeong
c
a
Department of International Trade, College of Economics and Business,
Hannam University, Taejon, South Korea, 306-791
b
Department of International Management, College of Business and Economics,
Chungnam National University, Taejon, South Korea, 305-764
c
Korea Institute of Finance, Seoul, South Korea, 100021
Abstract
This paper investigates the FeldsteinHorioka coecients for 11 Asian countries using the
recently developed between-group FMOLS and DOLS panel cointegration techniques.
Savings and investment rates are found to be nonstationary and to be cointegrated in panels.
The estimated coecients using FMOLS and DOLS are 0.39 and 0.42, respectively, for the
period 19801998. These values are much smaller than the estimates of 0.58 and 0.76 for 1960
1979. The small coecients suggest that capital mobility increased in Asian countries in the
1980s and 1990s.
2004 Elsevier Ltd. All rights reserved.
JEL classication: F31; F32; F36
Keywords: FeldsteinHorioka puzzle; FMOLS panel cointegration; DOLS panel cointegration; Panel unit
root test
* Corresponding author. Tel.: C82 42 629 7597; fax: C82 42 636 5879.
E-mail address: hongkee@mail.hannam.ac.kr (H. Kim).
0261-5606/$ - see front matter 2004 Elsevier Ltd. All rights reserved.
doi:10.1016/j.jimonn.2004.10.006
Journal of International Money and Finance
24 (2005) 7182
www.elsevier.com/locate/econbase
1. Introduction
Increasing capital mobility across countries is an important phenomenon for
economic policy makers and rms. It has potential benecial eects on the economy
because it enables agents to allocate the resources more eciently and give more
scope for risk management. However, higher international capital mobility may
increase the possibility of abrupt reversals of capital ows that destabilize economies
and cause nancial crises, like the 1997 Asian crisis. The degree of international
capital mobility also has an inuence on the eects of economic policy and responses
to external shocks. Therefore, it is important and worthwhile to investigate the
degree of international capital mobility.
Asia is composed of many dynamic emerging economies. Most of the Asian
countries restricted capital ows across countries during the 1960s and 1970s. But in
the 1980s they introduced relatively oating exchange rate systems and started to
take measures for capital account liberalization cautiously and progressively. They
accelerated capital market opening in the 1990s. It is expected that the removal of
capital controls has increased international capital mobility. These capital account
liberalization policies contributed to massive capital inows to Asian countries in the
1990s prior to the nancial crisis in 1997. Here the question arises as to whether
international capital mobility actually increased in Asian economies after the 1980s
relative to periods of the 1960s and 1970s, and if so, how mobile are capital ows
across countries in Asia?
There are several ways to investigate the degree of international capital mobility.
1
One is to investigate the relationship between savings and investment. Feldstein and
Horioka (1980, hereafter FH) proposed that the correlation between savings and
investment would be zero under perfect international capital mobility, whereas it
would be one under no capital mobility. Many economists have studied the savings
and investment relation
2
since the seminal work of FH.
Some of these studies focused on the time series aspects of the data. Savings and
investment rates usually turn out to be nonstationary. It is well known that one
should avoid a spurious regression problem by checking the cointegration
relationship when the time series data are nonstationary. However, the traditional
cointegration technique has the problem of low power. In order to improve the
power of the test, the number of observations (span of data) should be extended.
However, it is not easy to nd data for a very long time span except for a few
countries.
3
Furthermore, expansion of the time horizon might cause the unwanted
regime-shift problem for the savinginvestment relationship. The panel data enable
us to solve the power problem.
1
These include checking the covered or uncovered interest parity condition and examining the
international consumption correlation, international portfolio diversication. Obstfeld (1993) is referred
to for more details.
2
See Coakley et al. (1998).
3
Taylor (1996) uses the data of savings and investment rate for 12 countries over the period of
18501992.
72 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
This paper attempts to estimate FH coecient using recently developed panel
cointegration techniques and examines how it has changed since the 1980s, reecting
the adoption of capital account liberalization measures in Asian countries. We also
aim at checking if FH coecients using panel cointegration approach is a good
candidate for measuring the international capital mobility. A few papers have
examined international capital mobility using panel cointegration techniques with
data only on developed countries.
4
To the best of our knowledge, there is no research
on FH coecient in Asian countries or in other developing countries, using panel
cointegration techniques.
This paper is distinct from other researches in several respects. First, it applies the
recently developed panel cointegration techniques to the relationship between
savings and investment in Asian countries. Furthermore this paper uses the
between-group (or group-mean) panel cointegration test to the fully modied OLS
(hereafter FMOLS) and dynamic OLS (hereafter DOLS) methods in order to deal
with heterogeneity problems and to conduct plausible tests. Second, this study
measures the international capital mobility of the Asian economy as a group, rather
than for individual countries. In addition, this paper deals with the degree of
international capital mobility in the developing countries, which attracts the close
attention and concern of international investors and international organizations
such as the IMF.
The paper is organized as follows. Section 2 briey reviews the literature on the
savings and investment relationship. Section 3 explains the model and empirical
methods. The data and empirical results are presented and interpreted in Section 4,
and the nal section contains the summary and conclusions.
2. Brief literature review
Feldstein and Horioka (1980) use the following regression model to check the
relationship between savings and investments.
IR
i
ZaCbSR
i
C3
i
1
where IR
i
and SR
i
denote the domestic investment rate and domestic savings rate of
country i, respectively. They suppose that if b is large and near to one in this model,
capital is immobile. In contrast, if b is near to zero, then capital is internationally
mobile. They run the regression using the averaged cross-section data of 16 OECD
countries for the period 19601974. Their estimates of b range from 0.87 to 0.91,
which are contrary to the supposed belief that capital is mobile across countries in
modern times. Consequently, the high correlation between savings and investment
has been known as the FeldsteinHorioka puzzle. This b is sometimes called the
savings-retention coecient or the FH coecient.
5
Subsequently, there have been
4
See Ho (2002) and Moon and Phillips (1998).
5
Some economists have argued that Feldstein and Horiokas result is not informative regarding capital
mobility. See Tesar (1991) and Bayoumi (1990).
73 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
a large number of studies in this area. We will do selective surveys on the saving and
investment relation using panel data.
Krol (1996) argues that one might obtain a wrong inference using averaged data
for savings and investment. He postulates that estimates of the FH coecient using
averaged cross-section data would be high, due to intertemporal budget constraints,
which require that current account decits should not be allowed to persist innitely.
The current account position, by denition, equals the dierence between savings
and investment. Since the cumulative current account must be zero over time,
savings and investments move hand in hand in the long run. Therefore, the
relationship between savings and investment appears to be strong when averaged
data are used. Krol uses annual panel data to avoid this problem and controlled
business cycle and country size eects in the following way. He runs the regression
using data from 1962(1975) to 1990 for 21 OECD countries.
IR
i;t
ZaCc
i
Cd
t
CbSR
it
Ce
it
2
where c
i
and d
t
denote the xed eects of each country and time eects, respectively.
His estimates of b are 0.160.2, which are much smaller than previous estimates.
6
He
supposes that the panel regression removes the business cycle and country size
eects, so his results imply that the international capital mobility is large.
Coiteux and Olivier (2000) and Jansen (2000) contend that the low coecients
Krol (1996) obtained are derived from the inclusion of Luxembourg in the regression
data. They show that the estimated correlation coecients are almost the same as
previous estimates when Luxembourg is not included, and show that the short-run
coecient for savings is low (between 0.14 and 0.33), while the long-run coecient
for savings is high (0.63) in a panel error correction form. They interpret these results
as showing that international capital is very mobile in the short run, but not in the
long run.
Coakley et al. (2001) estimate the FH coecients using the pooled cross-section
and the group-mean panel estimator techniques for 12 OECD countries.
7
These
techniques do not require cointegration estimation techniques. Their slope estimate
is only 0.33 and not signicantly dierent from zero using the group-mean OLS
panel estimator technique, which controls for heterogeneity across countries,
whereas it is 0.68 using the cross-section estimator. Their results imply that the FH
puzzle might be derived from the heterogeneity of coecients. Their use of group-
mean panel estimation is based on the suspicion that the cointegration between
saving and investment is weak or mixed.
Ho (2002) is another interesting paper using panel cointegration. He examines the
savinginvestment relationship by applying the DOLS and FMOLS of Kao and
Chiang (2000) for 20 OECD countries. In his results, the inclusion or exclusion
6
Feldstein and Horiokas estimate is equal to 0.89.
7
Coakley et al. (2001) show that the mean group estimators are generally correctly sized even in the
presence of heterogeneity of coecients with I(1) error, whereas the pooled estimator has a large size
distortion in the case of heterogeneous coecient.
74 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
of Luxembourg does not aect the size of the FH coecient. He shows that
DOLS outperforms FMOLS. His FH savings-retention coecients tend to be below
0.47.
However, his paper has several shortcomings. He does not deal with the
alternative hypothesis of heterogeneous coecients in the sense that he uses the
within-dimension panel cointegration estimator rather than the between-
dimension panel cointegration estimator.
8
Another problem is that he uses OLS
estimates as a rst step for obtaining the FMOLS estimator, which might cause
a large size distortion.
9
The next section suggests the between-group FMOLS and DOLS as desirable and
plausible panel cointegration techniques to be used to examine the savings and
investment relationship.
3. Empirical methods
3.1. Panel unit root and panel cointegration
It is well known that the traditional unit root tests or cointegration tests method
(e.g., ADF or residual-based cointegration tests) involves the low power problem for
nonstationary data. Panel data is a good alternative for increasing the number of
observations, and hence the power of the tests. Levin and Lin (1992, hereafter LL)
initiated study on the panel unit root with heterogeneous dynamics, xed eects, and
an individual-specic determinant trend. However, they assume the homogeneous
autoregressive root under the alternative. More recently, Im et al. (1996, hereafter
IPS) propose the between-group panel unit root tests that permit heterogeneity of the
autoregressive root under the alternative.
10
This paper uses the panel unit root test of LL and IPS. The IPS test will be
considered more important because it is appropriate for a heterogeneous regressive
root under an alternative hypothesis. The basic equation for the panel unit root tests
for IPS is as follows:
Dy
i;t
Za
i
Cb
i
y
i;t1
C

p
jZ1
r
ij
Dy
i;tj
C3
it
iZ1; 2; 3; .N; tZ1; 2; 3; .T 3
8
According to Pedroni (2000, 2001), for heterogeneous cross-section data, the group-mean estimator is
much more useful than the within-group estimator in the sense that test statistics constructed using
group-mean estimators are designed to test the null hypothesis, so that the values under alternative
hypotheses are not constrained to be the same.
9
To reduce size distortion, the initial value in FMOLS should be a value under the null hypothesis or
a theory-based derived value.
10
Maddala and Wu (1999) and Choi (2001) also suggest the same kinds of panel unit root tests using
a Fisher statistic.
75 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
where p is selected to make the residuals uncorrelated over time. The null hypothesis
is that b
i
Z0 for all i, whereas the alternative hypothesis is that b
i
!0 for some i.
The ADF type t-statistics of IPS can be written as follows:
^
t
NT
Z
1
N

N
i
t
iT
p
i
4
where t
iT
( p
i
) is the ADF t-statistic for country i based on the country-specic ADF
regression, as in Eq. (3). IPS modied the standardized t-bar statistic as follows:
tZ

N
p
_
^
t
1
N

N
iZ1
Et
iT
p
i
; 0 : b
i
Z0
_

1
N

N
iZ1
Vart
iT
p
i
; 0 : b
i
Z0
_ 5
The t-bar statistic has a standard normal distribution as N and T0N and
N/T 0k, where k is a nite positive constant.
Recently, attention has been paid to cointegration tests and estimation in panel
models, including studies by Pedroni (1995, 1999, 2000), Kao (1999), Kao and
Chiang (2000), and Phillips and Moon (1999).
11
One of the most troublesome
questions in those papers is how to tackle heterogeneous short-run dynamics and
heterogeneity across members, for the heterogeneity problem seems to be prevalent
in panel data. We use the cointegration test and estimation method of Pedroni (1995,
1999, 2000) to handle the heterogeneity problem. As a general form, the following
type of regression will be considered.
IR
it
Za
i
Cd
t
Cb
i
SR
it
C3
it
iZ1; 2; 3.N; tZ1; 2; 3.T 6
This formulation allows for considerable heterogeneity: xed eect (a
i
), and
individual deterministic trend (d
i
) and a heterogeneous slope coecient (b
i
). The
regression form in Eq. (6) is very powerful in the sense that it incorporates all kinds
of country and time heterogeneities that are usual in the savingsinvestment relation.
IR
i
and SR
i
are assumed to be integrated of order one for each member i in panels.
Under the null hypothesis of no cointegration, the residual 3
it
is also integrated of
order one.
Pedroni (1995, 1999) proposes seven residual-based tests for the null of no
cointegration, allowing for heterogeneous xed eects and deterministic trends as
well as heterogeneous short-run dynamics. Four are based on pooling the residuals
of the regression for the within-group and the other three are based on pooling the
residuals for the between-group.
12
In both tests, rejection of the null hypothesis
11
For a recent literature survey, see Baltagi and Kao (2000).
12
Pedronis (1995) four within-group panel cointegration tests are the panel r-statistic, panel
parametric t-statistic (panel ADF), panel t-statistic, and panel variance ratio statistic. He proposes the
group r-statistic, non-parametric group t-statistic, and parametric group t-statistic (group ADF) as the
between-group test statistics for panel cointegration.
76 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
means that the variables under consideration are cointegrated. Pedronis (1995)
Monte Carlo simulation shows that the power of the between-group statistic is
higher than that of the within-group statistic in the case of small samples. Our work
will do cointegration tests using both the between-group and the within-group
methods.
3.2. The between-group panel FMOLS and DOLS estimators
Now, how should we estimate the cointegration vector? We will examine two
panel cointegration estimators: the between-group fully modied OLS (FMOLS)
and dynamic OLS (DOLS). The FMOLS is popular in conventional time series
econometrics, for it is believed to eliminate endogeneity in the regressors and serial
correlation in the errors. Pedroni (2000, 2001) proposes two methods to apply this
fully modied method to panel cointegration regression: the pooled (or within-
group) panel FMOLS estimator and the group-mean (between-group) FMOLS
estimator.
13
We will use the between-group FMOLS estimator, because it allows for
a more exible alternative hypothesis and suers much less from small sample size
distortion than the within-group estimator.
14
The group-mean panel FMOLS estimator for Eq. (6) can be written as:
^
b

GFM
Z
1
N

i
_
_

T
tZ1
_
SR
i;t
SR
i
_
IR

i;t
T
^
g
i

T
tZ1
_
SR
i;t
SR
i
_
2
_
_
7
where
IR

i;t
Z
_
IR
i;t
IR
i
_

^
U
21;i
^
U
22;i
DSR
i;t
and
^
g
i
Z
^
G
21i
C
^
U
0
21;i

^
U
21;i
^
U
22;i

^
G
22;i
C
^
U
0
22;i

Here
^
U
i
Z
^
U
0
i
C
^
G
i
C
^
G
i
#
is the estimated long-run covariance matrix of the stationary
vector consisting of the estimated residuals from the cointegration regression and the
dierences in savings rate.
^
U
0
21i
is the long-run covariance between the stationary
error terms (3
it
in Eq. (6)) and the unit root autoregressive disturbances.
^
U
2
22i
is the
long-run covariance among the dierence in savings rates.
^
G
i
is a weighted sum of the
autocovariances and a bar over these letters denotes the mean for i members.
15
The associated t-statistic for the between-group FMOLS estimator takes the
following form:
t
^
b

GFM
Z
1

N
p

N
iZ1

^
b

FM;i
b
_
^
U
1
11;i

t
_
SR
i;t
SR
i
_
2
_
1=2
8
13
Phillips and Moon (1999) also propose that the FM method yields an optimal estimator for the
cointegration coecient in Gaussian cointegration regression models.
14
Pedroni (2000) shows that the between-group FMOLS estimator has a much smaller size distortion
than the within-group estimator by Monte Carlo simulation, whereas both are unbiased.
15
Interested readers can refer to Pedroni (2000, 2001) for more details.
77 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
where b is a value under the null hypothesis. The above t-statistic is standard normal
as T and N approach innity.
Next, the DOLS panel cointegration estimator of the FH coecient is considered.
Kao and Chiang (2000) apply dynamic OLS (DOLS) to panel cointegration
estimation. Here, the DOLS estimator is slightly dierent from the original
formulation of Kao and Chiang (2000), because we are interested in the between-
group estimator. DOLS uses the past and future values of DSR
it
as additional
regressors. The between-group panel DOLS regression can be written as follows:
IR
i;t
Za
i
Cd
t
Cb
i
SR
i;t
C

Ki
kZKi
g
ik
DSR
i;tk
Cu

i;t
9
^
b

DOLS
Z
_
1
N

N
iZ1
_

T
tZ1
Z
i;t
Z
#
i;t
_1_

T
tZ1
Z
i;t
~
IR
i;t
__
1
10
where Z
i,t
is the 2(KC1)1 vector of regressors Z
i;t
ZSR
it
SR
i
; DSR
i;tk
; .;
DSR
i;tCk
,
~
IR
i;t
ZIR
i;t
IR
i
. A bar over a letter denotes a mean and the subscript 1
outside the brackets indicates the rst elements of the vector used to obtain the
pooled slope coecient. The associated t-statistic for the group-mean estimator can
be constructed as:
t
^
b

DOLS
Z
1

N
p

N
iZ1
_
^
b

D;i
b
_
_
1
^
s
2
i

t
_
SR
i;t
SR
i
_
2
_
1=2
11
where
^
s
2
i
is the long-run variance of the residuals from the DOLS regression and
^
b

D;i
is the conventional DOLS estimator. This t-statistic is standard normal as T and N
approach innity, as in the FMOLS estimator.
4. Empirical results
The data are taken from the International Financial Statistics of the IMF. The
data are annual and cover the period from 1960 to 1998 for 11 Asian countries.
16
We
check whether the individual time series data are nonstationary using ADF and PP
(PhillipsPerron test) and examine whether the panel data series have unit roots
using the LL and IPS methods.
Table 1 shows that the individual savings and investment rates are nonstationary,
except in Sri Lanka. Only the savings rate in Sri Lanka is stationary at the 5%
signicance level. Table 2 shows that the null of the unit roots for the panel data for
16
India, Indonesia, Japan, Korea, Malaysia, Myanmar, Pakistan, Philippines, Singapore, Sri Lanka,
and Thailand.
78 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
the savings and investment rates cannot be rejected by both the LL and IPS tests.
Therefore, we can implement a test for panel cointegration between savings rate and
investment.
Table 3 shows the outcomes of cointegration tests between the investment and
savings rates. We use three within-group tests and three between-group tests to check
whether the panel data are cointegrated. The results of the within-group test show
that the null hypothesis of no cointegration can be rejected at the 1% signicance
level. The between-group tests reject the null of no cointegration at the 5%
signicance level. Therefore, the savings and investment rates appear to be
cointegrated at a reasonable signicance level.
Finally, we estimate the cointegrating vector using two methods: the group-mean
FMOLS and DOLS estimators. We consider two cases: with time dummy and
without time dummy. A time dummy is usually included to check for cross-sectional
dependency across countries. In general, savings and investment rates can be aected
by the international business cycle. Therefore, a time dummy is included to control
for international business cycle eects.
Table 4 shows the estimate of the saving retention ratio by period, using the
between-group panel cointegration technique. First, we look at the case of a time
Table 1
Unit root tests for saving rate and investment rate by individual country, 19601998
Country Savings rate Investment rate
ADF test PP test ADF test PP test
India 1.44 1.74 1.71 1.27
Indonesia 1.14 0.96 0.97 1.06
Japan 0.87 1.42 2.06 2.09
Korea 1.43 1.41 1.99 1.76
Malaysia 0.34 0.22 2.07 1.58
Myanmar 1.74 1.77 2.77 2.73
Pakistan 1.67 1.53 3.16 3.14
Philippines 1.02 1.05 2.43 2.02
Singapore 0.41 0.47 1.68 1.56
Sri Lanka 3.39** 3.46** 1.88 1.90
Thailand 0.51 0.51 1.95 1.65
Notes: the number of lags is one in Myanmar and Pakistan and zero in others. ** denotes the 5%
signicance.
Table 2
Panel unit root tests for saving and investment rates, 19601998
Method Savings rate Investment rate
LL IPS LL IPS
t Value 1.03 1.82 1.23 1.16
Panel critical value
5% 5.43 1.88 5.43 1.88
10% 5.13 1.98 5.13 1.98
Notes: the null hypothesis in the above panel unit root is that all individual series are nonstationary.
79 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
dummy for each period. The group-mean FMOLS estimate of the FH coecient
is 0.54, while the DOLS estimate is 0.62, for the entire period. These estimates
are slightly smaller than those in other papers. However, the coecient is still
signicantly nonzero with either method. It is recognized that these values are similar
to the two-thirds typically found in empirical FH studies.
Now, we consider two sub-periods (19601979 and 19801998).
17
Table 4 shows
that the FH coecient using FMOLS is 0.39 for the period 19801998, whereas it
is 0.58 for 19601979. The DOLS estimate also decreases from 0.76 in the rst sub-
period to 0.42 in the second sub-period. The estimated coecients (0.39, 0.42) for the
period 19801998 are much lower than previous results,
18
although they are still
signicantly dierent from zero. Without the time dummy, the coecients are 0.37
(FMOLS) or 0.44 (DOLS) for the second sub-period, and are also much smaller than
those for the rst sub-period. These coecients seem very small, when we consider
the conclusion of FH, i.e., two-thirds of domestic savings stay in the country. It is
interesting that the estimates by FMOLS are smaller than or similar to those by
DOLS. These results contrast with the results of Ho (2002) that coecients estimated
by DOLS are much smaller than those by FMOLS. These estimated coecients
remind us of Corbins (2001) results. Her FH coecient was around 0.4 for the
period using the gold standard (18851913), when capital across countries was
almost perfectly mobile.
What do the signicant reduction of the FH coecients between the two sub-
periods and the relatively small numbers mean? It is well acknowledged that the
capital account liberalization policies and development of telecommunication and
information technology has increased capital movement across countries in Asia
since the 1980s. A signicant decrease in the FH coecient during the period 1980
1998 is consistent with the recognized facts. Therefore, a reduction in the HF
coecients for the period 19801998 seems to tell us that international capital
mobility has increased after the 1980s in Asian countries from the FH perspective.
However, the nonzero coecients imply that capital is not perfectly mobile across
these countries. In addition, these estimated results imply that the FH coecient is
still a good measure for international capital mobility, when it is estimated by panel
cointegration estimators.
Table 3
Panel cointegration tests, 19601998
Within-group Between-group
r-Stat Panel t-stat Panel ADF-stat r-Stat Group t-stat Group ADF-stat
3.48 3.51 3.72 1.98 2.80 2.97
Notes: the test statistics are normalized so that the asymptotic distribution is standard normal.
17
The period is divided into before and after 1980, because many Asian countries started to remove
capital controls in the 1980s.
18
Coakley et al. (1998) summarize the cross-section and time series coecients in previous researches.
The former is above 0.62 except in one case and the latter above 0.6 with several exceptional cases.
80 H. Kim et al. / Journal of International Money and Finance 24 (2005) 7182
5. Conclusion
This paper has studied the international capital mobility of Asian countries in
terms of the FH coecient, applying recently developed panel cointegration
methods. We apply two classes of panel cointegration test and used between-group
FMOLS and DOLS estimators in order to control for heterogeneous short-run
dynamics and heterogeneous error terms.
It is found that the savings and investment rates in panel data are nonstationary
but that they are cointegrated. The FH coecients using FMOLS and DOLS are
0.39 and 0.42, respectively, for the period 19801998, which is much smaller than
those in other previous researches, whereas they are 0.58 and 0.76 for 19601979.
The estimated FH coecients after 1980 are almost the same as those for the period
of the gold standard system, when capital is considered to have been highly mobile
between countries. The decrease in the estimated FH coecient from 0.58 to 0.39
(group-mean FMOLS) or from 0.76 to 0.42 (group-mean DOLS) might be
interpreted as evidence that capital has been more mobile after the 1980s in Asian
countries. This increasing capital mobility might reect capital account liberaliza-
tion. Finally, the FH coecient might be a good candidate for measuring the degree
of international capital mobility, when it is estimated in the between-group panel
cointegration frameworks.
Acknowledgements
We gratefully acknowledge the helpful comments of anonymous referees. We are
grateful to Peter Pedroni for his sincere and helpful comments.
This work was supported by the Korea Research Foundation Grant (KRF-2000-
013-CA0120).
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Table 4
Panel cointegration estimation
Period 19601998 19601979 19801998
Panel with
time dummy
GM FMOLS 0.54(18.39) 0.58(14.58) 0.39(6.26)
GM DOLS 0.62(21.11) 0.76(16.11) 0.42(7.22)
Panel without
time dummy
GM FMOLS 0.69(21.70) 0.61(17.84) 0.37(6.34)
GM DOLS 0.84(26.25) 0.76(18.82) 0.44(1.60)
Notes: the value in parenthesis denotes the t-value for zero coecient. As explained in Section 3,
asymptotic distribution of t-statistic is standard normal as T and N go to innity. **GM denotes the
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