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International Financial Market Integration and The Feldstein–Horioka Puzzle: Evidence from Emerging Market Economies

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  • Naib ALAKBAROV

    (Faculty of Economics and Administrative Science, Usak University, Usak, Turkey.)

  • Yılmaz BAYAR

    (Faculty of Economics and Administrative Science, Bandirma Onyedi Eylul University, Balikesir, Turkey.)

Abstract

Financial liberalization and globalization gained speed as of late 1970s with collapse of Bretton Woods system and the global integration raised considerably, especially during the past four decades. Foreign capital flows in terms of foreign direct investments and portfolio investments increased, especially in the emerging markets experiencing high growth rates, with relatively cheap, but qualified labor. This study tests the validity of the Feldstein-Horioka puzzle in 21 emerging markets during the 1994-2016 period with the panel cointegration test of Westerlund’s (2008) Durbin-Hausman panel cointegration test and the panel causality test of Dumitrescu and Hurlin (2012). The findings revealed that domestic investments were mostly financed through external capital inflows; therefore, the findings contradicted the results of Feldstein-Horioka (1980) in the sample of emerging market economies.

Suggested Citation

  • Naib ALAKBAROV & Yılmaz BAYAR, 2021. "International Financial Market Integration and The Feldstein–Horioka Puzzle: Evidence from Emerging Market Economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 143-165, December.
    • Handle: RePEc:rjr:romjef:v::y:2021:i:1:p:143-165
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    More about this item

    Keywords

    domestic savings; domestic investments; Feldstein-Horioka puzzle; international financial market integration; emerging market economies; panel data analysis;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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