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Capital Mobility in the Enlarged Europe: A New Look at the Feldstein-Horioka Puzzle using a Quantile Regression Approach

Author

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  • Irina Syssoyeva-Masson
  • João de Sousa Andrade

Abstract

This study assesses the degree of financial integration in the Enlarged Europe (EU-24), as well as in two sub-groups [Old Member States (EU-14) and New Member States (NMS-10)] separately by using the Feldstein-Horioka [1980] approach, i.e., by analysing the relationship between domestic saving and investment. Our results, obtained by the quantile regression method for panel data models, are consistent with a relatively high level of capital mobility in the EU-24. They also indicate that the higher ratios of domestic investment to GDP (I/GDP) in the EU-24 are less restricted by domestic saving (S/GDP), while the two ratios (I/GDP and S/GDP) are more closely related in countries with low investment rates. Our main findings are also confirmed by the results of the Granger causality test, which we undertook to ascertain if domestic saving plays an active role in financing investment in the Enlarged EU. According to our results, the Granger causality is running in both directions between saving and investment in the EU-24 and for some countries no evidence of Granger causality between saving and investment has been detected.

Suggested Citation

  • Irina Syssoyeva-Masson & João de Sousa Andrade, 2015. "Capital Mobility in the Enlarged Europe: A New Look at the Feldstein-Horioka Puzzle using a Quantile Regression Approach," Revue d'économie politique, Dalloz, vol. 125(4), pages 571-599.
    • Handle: RePEc:cai:repdal:redp_254_0571
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    Cited by:

    1. Ganic Mehmed & Novalic Amila, 2023. "Does regional trade integration reinforce or weaken capital mobility? New evidence from four free trade areas," Economics and Business Review, Sciendo, vol. 9(3), pages 239-264, October.
    2. Farzad Mirmahboub, 2017. "Financial integration faced with the crisis: comparative cases of Greece and Portugal," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 64(3), pages 269-284, September.

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