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Examining the Feldstein–Horioka puzzle using common factor panels and interval estimation

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  • Ginama, Isamu
  • Hayakawa, Kazuhiko
  • Kanmei, Takahiro

Abstract

The article empirically examines the Feldstein–Horioka puzzle using national data from 23, 24, and 29 Organisation for Economic Cooperation and Development (OECD) countries, along with regional economic data from Japan, Indonesia, and the Philippines. The article applies a panel model with common factors to data from the OECD countries, Japan, and Indonesia. Few data exist for the Philippines. Therefore, to analyze its regional data, a different method is used: it simultaneously removes influences on savings and investment rates by regression analyses, except for intranational capital flows. Significant and not significant statistical evidence are found to support the existence of the Feldstein–Horioka puzzle for OECD countries during three observation periods. However, evidence of mobile intranational capital flows exists in Japanese and Indonesian data. Bootstrap BCa confidence intervals of the correlation coefficient between savings and investment rates also show mobile intranational capital flows for data of the Philippines.

Suggested Citation

  • Ginama, Isamu & Hayakawa, Kazuhiko & Kanmei, Takahiro, 2018. "Examining the Feldstein–Horioka puzzle using common factor panels and interval estimation," Japan and the World Economy, Elsevier, vol. 48(C), pages 11-21.
    • Handle: RePEc:eee:japwor:v:48:y:2018:i:c:p:11-21
    DOI: 10.1016/j.japwor.2018.06.001
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    More about this item

    Keywords

    Capital mobility; Regional data; Developing countries; Common factor panel models; BCa confidence interval;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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