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Globalization and the Feldstein-Horioka puzzle

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  • Javed Younas
  • Debasish Chakraborty

Abstract

Capital account liberalization and the integration of world financial markets should increase capital mobility across countries. This article uses the Feldstein-Horioka savings-investment methodology to examine the impact of economic globalization on the degree of capital mobility in 99 countries over the period 1970 to 2005. Our findings suggest that economic openness and financial market integration have led to increased capital mobility in developed as well as developing countries. However, their effect appears to be larger for the latter. This also implies that countries with more financial openness can run higher current account deficits due to better access to external capital markets. Our results also support the previous findings that foreign aid supplements domestic savings for investment in developing countries.

Suggested Citation

  • Javed Younas & Debasish Chakraborty, 2011. "Globalization and the Feldstein-Horioka puzzle," Applied Economics, Taylor & Francis Journals, vol. 43(16), pages 2089-2096.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:16:p:2089-2096
    DOI: 10.1080/00036840903035985
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    Cited by:

    1. Harutaka Takahashi, 2020. "A dynamic theory of the Feldstein-Horioka puzzle and financial frictions: Re-estimation of the saving retention coefficient," Discussion Papers 2007, Graduate School of Economics, Kobe University.
    2. Nabamita Dutta & Sanjukta Roy, 2013. "Media, Education and Corruption: Investigating the Associations," Economic Affairs, Wiley Blackwell, vol. 33(2), pages 207-219, June.
    3. But, Boris & Morley, Bruce, 2017. "The Feldstein-Horioka puzzle and capital mobility: The role of the recent financial crisis," Economic Systems, Elsevier, vol. 41(1), pages 139-150.
    4. C. P. Barros & Luis A. Gil-Alana, 2015. "Investment and saving in Angola and the Feldstein-Horioka puzzle," Applied Economics, Taylor & Francis Journals, vol. 47(44), pages 4793-4800, March.
    5. Younas, Javed, 2015. "Terrorism, openness and the Feldstein–Horioka paradox," European Journal of Political Economy, Elsevier, vol. 38(C), pages 1-11.
    6. 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.
    7. 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.
    8. 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.
    9. Ketenci, Natalya, 2018. "Impact of the Global Financial Crisis on the Level of Capital Mobility in EU Members," MPRA Paper 100075, University Library of Munich, Germany.
    10. Socaciu, Erzsébet-Mirjám & Nagy, Bálint-Zsolt & Benedek, Botond, 2023. "No place like home: Home bias and flight-to-quality in Group of Seven countries," Economic Modelling, Elsevier, vol. 129(C).
    11. Younas, Javed, 2011. "De facto financial openness and capital mobility," Economics Letters, Elsevier, vol. 112(1), pages 60-62, July.

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