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The Feldstein - Horioka Paradox, A Case Study of Turkey

Author

Listed:
  • Seyi Saint Akadiri
  • Itodo Idoko Ahmed
  • Ojonugwa Usman
  • Medhi Seraj

Abstract

The Feldstein and Horioka (1980) is one of the globally reviewed issues in international finance and macroeconomics. The theory juxtapose relationships between saving rates and investment rates in a dynamic way, that capital mobility across nations, would act to match up incremental product of capital. It was argued that, savings (especially in unregulated international markets) would flow to countries that show a tendency of high investment opportunities. Thus, indigenous saving and investment rate would be uncorrelated. The main objective of this study is to evaluate saving - investment relationships in case of Turkey, using a Time Series (co-integration and Granger causality) analysis between the periods of 1960 – 2014. From the findings, we discovered that a short and the long – run relationship exist between the series, with a major structural break in 1993. The co-integration regression revealed presence of high capital mobility in Turkey. Thus, the Feldstein-Horioka paradox is a puzzle in Turkey.

Suggested Citation

  • Seyi Saint Akadiri & Itodo Idoko Ahmed & Ojonugwa Usman & Medhi Seraj, 2016. "The Feldstein - Horioka Paradox, A Case Study of Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(12), pages 744-749.
    • Handle: RePEc:asi:aeafrj:v:6:y:2016:i:12:p:744-749:id:1521
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