This paper examines the long‐term relationship between saving and investment as a criterion for assessing international capital mobility for the case of Saudi Arabia, the largest economy among the Middle Eastern and Arab nations.
The approach is modeled on Feldstein and Horioka covering the period 1963‐2007 for Saudi Arabia. We use the bounds testing approach and the Gregory and Hansen cointegration methods to test for the long‐run relationship between saving and investment. Additionally, before testing for this relationship, we conduct unit root tests, including the additive outlier model developed by Perron with an endogenously determined structural break.
The study finds no evidence of a long‐run relationship between saving and investment and therefore concludes that capital is highly mobile in Saudi Arabia. This finding is plausible given the economic and financial reforms which have occurred in Saudi Arabia along with increased capital inflows into the country in the last few decades.
Of the limited studies so far on developing countries, none has considered the capital mobility issue for an oil‐dependent country.
