Jansen (1996) and Jansen and Schulze (1996), based on a sample of developed countries argue that an error correction model would be the correct specification to estimate saving-investment correlations. The purpose of this paper is to verify if the same claim can be made using a sample of developing countries. Regarding developing countries is an error correction model indeed superior, as suggested by Jansen and Jansen and Schulze? How serious is the potential bias from using regressions in levels and in first differences instead of an error correction model? Although the theory implies that there is a long-run relationship between saving and investment, this does not seem to be the case for the majority of the developing economies individually. Therefore, the equation in differences is not poorly specified. Based on this equation it seems to be an intermediate degree of capital mobility in developing countries according to the criterion of Feldstein and Horioka.
solvency; error correction models; developing countries
