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Is the Feldstein-Horioka Puzzle History?


  • Jerry Coakley
  • Ana-Maria Fuertes
  • Fabio Spagnolo


A country's intertemporal budget constraint implies current account stationarity or that its saving and investment rates should cointegrate. However, such behaviour may not pertain in finite sample spans where the current account could be subject to persistent shocks. Accordingly, this paper reconsiders the Feldstein-Horioka puzzle for a panel of 12 OECD economies 1980I-2000IV using a mean group regression approach that is robust to persistent innovations and accounts for country heterogeneity and cross-sectional dependence. The mean group estimates are notably smaller than that from the conventional cross-section estimator and are statistically insignificant. Our findings support the view that capital is highly mobile in the long run for OECD economies despite persistence in the current account. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2004..

Suggested Citation

  • Jerry Coakley & Ana-Maria Fuertes & Fabio Spagnolo, 2004. "Is the Feldstein-Horioka Puzzle History?," Manchester School, University of Manchester, vol. 72(5), pages 569-590, September.
  • Handle: RePEc:bla:manchs:v:72:y:2004:i:5:p:569-590

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    References listed on IDEAS

    1. Luc Bauwens & Giordano Mion & Jacques-François Thisse, 2011. "The Resistible Decline of European Science," Recherches économiques de Louvain, De Boeck Université, vol. 77(4), pages 5-31.
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    4. Stephan, Paula E., 2010. "The Economics of Science," Handbook of the Economics of Innovation, Elsevier.
    5. Lubrano, Michel & Protopopescu, Camelia, 2004. "Density inference for ranking European research systems in the field of economics," Journal of Econometrics, Elsevier, vol. 123(2), pages 345-369, December.
    6. Levin, Sharon G & Stephan, Paula E, 1991. "Research Productivity over the Life Cycle: Evidence for Academic Scientists," American Economic Review, American Economic Association, vol. 81(1), pages 114-132, March.
    7. Michael Rauber & Heinrich W. Ursprung, 2008. "Life Cycle and Cohort Productivity in Economic Research: The Case of Germany," German Economic Review, Verein für Socialpolitik, vol. 9, pages 431-456, November.
    8. McDowell, John M, 1982. "Obsolescence of Knowledge and Career Publication Profiles: Some Evidence of Differences among Fields in Costs of Interrupted Careers," American Economic Review, American Economic Association, vol. 72(4), pages 752-768, September.
    9. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352-352.
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