Current Account Solvency and the Feldstein--Horioka Puzzle

Coakley, Jerry; Kulasi, Farida; Smith, Ron

doi:10.2307/2235567

Cited by 222 publications

(142 citation statements)

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“…Numerous studies have adopted this approach to measuring capital mobility (e.g., Coakley, Kulasi and Smith, 1996;Coakley and Kulasi, 1997;Hoffman, 2004). Most recently, Pelgrin and Schich (2008) analyze a sample of 20 OECD countries over the period 1960-1999 using a dynamic model that considers the speed of an economy's adjustment to shocks.…”

Section: Saving and Investment Correlationsmentioning

confidence: 99%

Capital Mobility and Capital Tax Competition

Zodrow¹

2010

National Tax Journal

135

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Section: Saving and Investment Correlationsmentioning

confidence: 99%

Capital Mobility and Capital Tax Competition

Zodrow¹

2010

National Tax Journal

135

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“…This avenue of empirical research is based on a potential cointegrating relation between the saving and investment ratio. Coakley, Kulasi and Smith (1996) argue that saving and investment as a share of GDP appear to be I(1) in OECD economies and the current account balance as a share of GDP might be I(0). Coakley and Kulasi (1997) find by means standard cointegration tests (Kremers, Ericsson andDolado 1992, Johansen 1991) that the saving and investment ratio are cointegrated in major OECD countries.…”

Section: Error Correction Modelsmentioning

confidence: 99%

Panel data model comparison for empirical saving-investment relations

Herwartz

2009

Applied Economics Letters

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may June 2006Abstract: The low capital mobility among OECD countries, signalled by a high saving-investment (SI) relation and known as the Feldstein-Horioka puzzle, has triggered a lively discussion in the empirical literature. In this paper, we compare between, pooled, time and country dependent specifications of the SI relation via cross-validation criteria. It is found that the country dependent model is best performing among the four. Secondly, error correction models are uniformly outperformed by static panel models. Thirdly, via scatter diagrams of cross section specific estimates we observe a different time evolution of SI relations for developed and developing economies.

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“…On the other hand, several papers have challenged Feldstein and Horioka's conclusion. Theoretically, in the short-run a positive saving-investment correlation may arise, despite capital being perfectly mobile across national borders, because of country-size (Harberger 1980;Murphy 1984;Baxter and Crucini 1993;Bahmani-Oskooee and Chakrabarti 2005), commonness in technological or productivity shocks (Rasin 1993;Glick and Rogoff 1995;Eiriksson 2011), non-traded goods (Frankel 1986;Dooley et al 1987), current account targeting (Summers 1982), endogenous fiscal policy (Levy 1995), international trading costs (Backus et al 1992;Obstfeld and Rogoff 2000), long-run solvency constraint (Coakley et al 1996), financial frictions (Bai and Zhang 2010), common deflator (Chu 2012) and long-run risk component in the shock process (Chang and Smith 2014).…”

Section: Introductionmentioning

confidence: 99%

Saving and investment causality: implications for financial integration in transition countries of Eastern Europe

Irandoust

2017

Int Econ Econ Policy

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Numerous studies have been devoted to the Feldstein-Horioka puzzle. However, no consensus has been reached in the literature. This paper examines the causal relationship between domestic saving and investment rates in six transition economies (Estonia, Latvia, Lithuania, Ukraine, Belarus, and Russian Federation). Theoretically, the presence of any type of causal structure between these two series in a country implies that national capital markets are not open; hence capital flows are impeded. Therefore, the paper employs the bootstrap panel Granger causality approach that accounts for both cross-sectional dependence and slope heterogeneity across countries to determine the causal structure. The findings show that there is a causality between the series, thereby implying that capital is not perfectly mobile internationally in any of the countries under review, but it is more mobile in Estonia, Russian Federation, and Latvia than Lithuania, Belarus, and Ukraine. The underdevelopment of financial markets in these countries as well as the demand for foreign capital to finance domestic investment projects and the lack of adequate economic and financial reforms might have driven these results.

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Current Account Solvency and the Feldstein--Horioka Puzzle

Cited by 222 publications

References 0 publications

Capital Mobility and Capital Tax Competition

Capital Mobility and Capital Tax Competition

Panel data model comparison for empirical saving-investment relations

Saving and investment causality: implications for financial integration in transition countries of Eastern Europe

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