(DP 1996-09) The Causal Relation Between Foreign and Domestic Savings in Four Southeast Asian Economies

Abstract

The empirical basis of the thesis that foreign savings substitute for domestic savings has been inappropriate in establishing what is obviously a causal relation. In this paper, we evaluate the above thesis using a bivariate Granger causality model and annual data on four Southeast Asian economies between 1950/60s and 1992. Our findings present a mixed picture: Foreign savings may leave domestic savings unaffected or cause it to rise or fall. We also found that the causal relation can be reverse, implying that foreign savings cannot be presumed exogenous.