The Feldstein-Horioka hypothesis revisited

Dzhumashev, Ratbek, and Cooray, Arusha (2017) The Feldstein-Horioka hypothesis revisited. B.E. Journal of Macroeconomics, 17 (1).

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Feldstein-Horioka hypothesis states that if there is perfect capital mobility, low correlation between domestic investment and savings should be observed. However, empirical analysis failed to confirm the hypothesis. This study attempts to shed a new light on international capital mobility by incorporating the effect of the fiscal balance and the financial balance. Specifically, for a panel of 161 countries over the 1990-2013 period, the extended model is tested in comparison with the existing models of capital mobility. At the aggregate level, strong support is found for the extended model; while, at the region disaggregated level, compared to the existing models the hypothesis of capital mobility holds for a larger number of regions. Our model and estimates are additionally extended to account for the fact that the above mentioned relationships, are conditional on the country's level of financial development.

Item ID: 69191
Item Type: Article (Research - C1)
ISSN: 1935-1690
Keywords: capital mobility, Feldstein-Horioka, fiscal balance, investment, saving, Shibata-Shintani
Date Deposited: 22 Feb 2022 01:56
FoR Codes: 38 ECONOMICS > 3801 Applied economics > 380112 Macroeconomics (incl. monetary and fiscal theory) @ 100%
SEO Codes: 15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150209 Savings and investments @ 100%
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