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The Feldstein-Horioka paradox: A selective survey of the literature

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  • Lapp, Susanne
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    Abstract

    The paper provides a selective survey of the literature on the Feldstein-Horioka paradox. The observed high correlation between national savings and domestic investment emerges as a robust empirical regularity. If this regularity is to be attributed to low capital mobility (due to government interventions or market imperfections) or other factors (such as immobility of goods, shocks or intertemporal budget constraints) cannot be resolved. The empirical evidence on the relative importance of the possible factors is too sketchy. Excluding government interventions, the possible impact of market imperfections in causing saving-investment corrrelations has hardly been investigated so far.

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 752.

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    Date of creation: 1996
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    Handle: RePEc:kie:kieliw:752

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    1. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
    2. Gordon, R.H. & Bovenberg, A.L., 1994. "Why is capital so immobile internationally?: Possible explanations and implications for capital income taxation," Discussion Paper, Tilburg University, Center for Economic Research 1994-63, Tilburg University, Center for Economic Research.
    3. Tesar, Linda L., 1991. "Savings, investment and international capital flows," Journal of International Economics, Elsevier, Elsevier, vol. 31(1-2), pages 55-78, August.
    4. Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
    5. Harold L. Cole & Maurice Obstfeld, 1989. "Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?," NBER Working Papers 3027, National Bureau of Economic Research, Inc.
    6. Jeffrey A. Frankel and Chudozie Okongwu., 1995. "Liberalized Portfolio Capital Inflows in Emerging Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C95-054, University of California at Berkeley.
    7. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
    8. Martin Feldstein & Philippe Bacchetta, 1991. "National Saving and International Investment," NBER Chapters, National Bureau of Economic Research, Inc, in: National Saving and Economic Performance, pages 201-226 National Bureau of Economic Research, Inc.
    9. Cardia, Emanuela, 1991. "The dynamics of a small open economy in response to monetary, fiscal, and productivity shocks," Journal of Monetary Economics, Elsevier, Elsevier, vol. 28(3), pages 411-434, December.
    10. Murphy, Robert G., 1986. "Productivity shocks, non-traded goods and optimal capital accumulation," European Economic Review, Elsevier, Elsevier, vol. 30(5), pages 1081-1095, October.
    11. Carmen Reinhart & Mohsin S. Khan, 1995. "Capital Flows in the APEC Region," IMF Occasional Papers 122, International Monetary Fund.
    12. Alan C. Stockman & Lars E.O. Svensson, 1985. "Capital Flows, Investment, and Exchange Rates," NBER Working Papers 1598, National Bureau of Economic Research, Inc.
    13. Alessandro Penati & Michael Dooley, 1984. "Current Account Imbalances and Capital Formation in Industrial Countries, 1949-81 (Déséquilibres des transactions courantes et formation de capital dans les pays industrialisés, 1949-81) (Los," IMF Staff Papers, Palgrave Macmillan, vol. 31(1), pages 1-24, March.
    14. Finn, Mary G., 1990. "On savings and investment dynamics in a small open economy," Journal of International Economics, Elsevier, Elsevier, vol. 29(1-2), pages 1-21, August.
    15. Jeffrey A. Frankel & Michael P. Dooley & Donald Mathieson, 1986. "International Capital Mobility in Developing Countries vs. Industrial Countries: What do Saving-Investment Correlations Tell Us?," NBER Working Papers 2043, National Bureau of Economic Research, Inc.
    16. Maurice Obstfeld, 1986. "How Integrated are World Capital Markets? Some New Tests," NBER Working Papers 2075, National Bureau of Economic Research, Inc.
    17. Wong, David Y., 1990. "What do saving-investment relationships tell us about capital mobility?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 9(1), pages 60-74, March.
    18. Sinn, Stefan, 1991. "Measuring international capital mobility: A critical assessment of the use of saving and investment correlations," Kiel Working Papers 458, Kiel Institute for the World Economy.
    19. Chinn, Menzie-D & Dooley, Michael-P, 1997. "Financial Repression and Capital Mobility: Why Capital Flows and Covered Interest Rate Differentials Fail to Measure Capital Market Integration," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(2), pages 81-103, December.
    20. Tamim Bayoumi, 1990. "Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior?," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 360-387, June.
    21. Gundlach, Erich & Sinn, Stefan, 1991. "Unit root tests of the current account balance: implications for international capital mobility," Kiel Working Papers 495, Kiel Institute for the World Economy.
    22. repec:fth:michin:358 is not listed on IDEAS
    23. Bayoumi, Tamim A. & Rose, Andrew K., 1993. "Domestic savings and intra-national capital flows," European Economic Review, Elsevier, Elsevier, vol. 37(6), pages 1197-1202, August.
    24. Jeffrey A. Frankel & Chudozie Okongwu, 1995. "Liberalized Portfolio Capital Inflows in Emerging Capital Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence," NBER Working Papers 5156, National Bureau of Economic Research, Inc.
    25. Murphy, Robert G., 1984. "Capital mobility and the relationship between saving and investment rates in OECD countries," Journal of International Money and Finance, Elsevier, Elsevier, vol. 3(3), pages 327-342, December.
    26. Tesar, Linda L., 1993. "International risk-sharing and non-traded goods," Journal of International Economics, Elsevier, Elsevier, vol. 35(1-2), pages 69-89, August.
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    Cited by:
    1. Schüler, Martin & Heinemann, Friedrich, 2002. "How integrated are the European retail financial markets? A cointegration analysis," Research Notes 3b, Deutsche Bank Research.
    2. Krämer, Jörg W., 1996. "Determinants of the expected real long-term interest rates in the G7-countries," Kiel Working Papers 751, Kiel Institute for the World Economy.

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