A fuzzy analysis of country-size argument for the Feldstein-Horioka puzzle

Authors:
Ibrahim Ozkan;Lutfi Erden;I. B. Türkşen
Affiliations:
Department of Economics, Hacettepe University, Beytepe, Ankara, Turkey and Department of Mechanical and Industrial Engineering, University of Toronto, Toronto, Canada M5S 3G8;Department of Economics, Hacettepe University, Beytepe, Ankara, Turkey;Department of Mechanical and Industrial Engineering, University of Toronto, Toronto, Canada M5S 3G8 and Department of Industrial Engineering, TOBB - Economics and Technology University, Ankara, Tu ...
Venue:
Information Sciences: an International Journal
Year:
2009

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Abstract

This study aims to analyze the effect of country size, represented by relative Gross National Products (GNP), on the association between domestic investment and saving, using data from a panel of 21 OECD countries. The countries are clustered into four groups with respect to their relative country sizes with an application of Fuzzy c-Means clustering technique. The novelty of this approach is that it is an unsupervised method that generates membership values between zero and one instead of binary values that take values of zero or one only. In addition to this it has the advantages of its tolerance to imprecise data and the ease of understanding. The results show that the saving retention coefficients are greater for larger countries except for the cluster which contains the largest country. Thus, this work presents only partial evidence that the country size affects the relationship of domestic saving and investment.