Testing the Empirical Validity of the Feldstein-Horioka Puzzle for Gambia Using the Gregory Hansen C

The research uses a co-integration test with structural break and regime shifts to examine the empirical validity of investment and saving in Gambia. WDI provided the information. To assess the empirical validity for The Gambia, the ARDL model with dummies and interaction factors is used to determine the short run, long run, and influence of structural breaks in the investment saving relationship. The findings revealed the occurrence of break points in 1983 and 2005, as well as the lack of co-integration at those points. We were unable to reject the null hypothesis of no co-integration at the break sites since the absolute values of ADF, are all less than 5% crucial levels. The long run coefficient for saving (saving retention coefficient) is negative and significant in ADRL with break dummies, but openness is positive and not significant. The break dummy is negative and extremely significant, indicating that the break is crucial in modelling the relationship between investing and saving. At 5%, the investment interaction term is positive and highly significant, but the saving interaction term is positive but not significant. In the short run, the saving-to-output coefficient is positive (=.5493598) and significant at 1%, whereas trading is likewise positive and significant at 5%. The long run coefficients for saving and openness are positive and not significant, while the short run coefficients are positive and significant, according to ADRL without break dummies.

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