The Feldstein-Horioka puzzle in an ARIMA framework
AbstractPurpose – To test the Feldstein-Horioka hypothesis that the investment-to-output ratio moves one-for-one with the saving-to-output ratio, suggesting international capital mobility. Design/methodology/approach – The paper uses the econometric framework developed by Fisher and Seater, interpreting the Feldstein-Horioka hypothesis as a long-run phenomenon, and paying particular attention to the integration properties of the data, since meaningful tests critically depend on these properties. The paper also investigates the power of the long-horizon regression tests, using the inverse power function of Andrews. Findings – The paper tests the Feldstein-Horioka hypothesis for 15 European countries, as well as for the USA and Japan, using annual data for the period from 1960 to 2002. Evidence is found against the Feldstein and Horioka hypothesis of low international capital mobility. Originality/value – Although the findings are in contrast to those of Feldstein and Horioka, they are consistent with neoclassical growth theory according to which there is no reason to expect a relation between saving and investment if there are no barriers to capital movements.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 34 (2007)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Chu, Kam Hon, 2012. "The Feldstein-Horioka Puzzle and Spurious Ratio Correlation," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 292-309.
- Mohsen Bahmani-Oskooee & Rajarshi Mitra, 2009. "The J-Curve at the industry level: evidence from U.S.-India trade," Economics Bulletin, AccessEcon, vol. 29(2), pages 1520-1529.
- Mohsen Bahmani-Oskooee & Marzieh Bolhasani, 2011. "How Sensitive is U.S.-Canadian Trade to the Exchange Rate: Evidence from Industry Data," Open Economies Review, Springer, vol. 22(1), pages 53-91, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jade Turvey).
If references are entirely missing, you can add them using this form.