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Resolving the Feldstein-Horioka Puzzle

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Abstract

This paper attempts to resolve the Feldstein-Horioka puzzle represented by the contradiction between the casual observation that capital mobility has reached a high level and the empirical evidence indicating the contrary by showing high saving ¬investment correlations. Three lines of enquiry are followed, the first of which is to rethink the Feldstein-Horioka methodology from econometric and theoretical perspectives. The second line of enquiry is to evaluate the appropriateness of the saving-investment correlation as a measurement criterion, and it is argued that international parity conditions are better criteria. The third line of enquiry is to investigate the mobility of different kinds of capital. It is concluded that international parity conditions, viewed and estimated properly, provide strong evidence for capital mobility, and hence the puzzle is resolved.

Suggested Citation

  • Moosa , Imad A., 1997. "Resolving the Feldstein-Horioka Puzzle," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 50(3), pages 437-458.
    • Handle: RePEc:ris:ecoint:0332
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    Citations

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    Cited by:

    1. Jean-Pierre Berdot & Gérard Kébabdjian & Jacques Léonard, 2003. "Corrélations investissement-épargne et mobilité internationale des capitaux," Recherches économiques de Louvain, De Boeck Université, vol. 69(1), pages 5-39.
    2. Kateřina Šímová, 2020. "Verification of Feldstein-Horioka Puzzle (Example of European Union Countries) [Verifikace Feldsteinovy–Horiokovy hádanky (příklad zemí Evropské unie)]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2020(2).
    3. Kateřina Šímová, 2020. "Verification of Feldstein-Horioka Puzzle (Example of European Union Countries) [Verifikace Feldsteinovy-Horiokovy hádanky (příklad zemí Evropské unie)]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2020(2), pages 43-60.
    4. Paleologos J. & Georgantelis S., 2002. "Testing the Degree of Openness of the Greek Capital Account: A Cointegration Analysis," European Research Studies Journal, European Research Studies Journal, vol. 0(3-4), pages 59-70, July-Dece.
    5. Yannick BINEAU, 2010. "A Empirical Assessment of the Feldstein and Horioka Literature," EcoMod2010 259600030, EcoMod.
    6. Chu, Kam Hon, 2012. "The Feldstein-Horioka Puzzle and Spurious Ratio Correlation," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 292-309.
    7. Hong G. Min, 1998. "Dynamic capita mobility, capital market risk, and exchange rate misalignment : evidence from seven Asian Countries," Policy Research Working Paper Series 2025, The World Bank.

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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