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Saving-Investment Nexus and International Capital Mobility in India: Revisiting Feldstein-Horioka Hypothesis



    () (Reserve Bank of India)


    () (Reserve Bank of India)


The paper employing ARDL cointegration approach examined the Feldstein-Horioka (FH)(1980) postulate on international capital mobility for India during 1950-51 to 1990-1991 and during 1950-51 to 2006-07. It finds a robust long-run cointegrating relationship between saving and investment rates in India with the former explaining the latter without any feedback, implying lower degree of international capital mobility. Conforming to the F-H hypothesis, the relationship between saving and investment rates was found to be weaker with the inclusion of post-reform period, characterized by a more liberalized regime on capital flows, than during the pre-reform period. In the short-run also the relationship between saving and investment rates was found to be strong, indicating the influence of temporary shocks emanating from business cycle. That the long-run equilibrium relationship between saving and investment rates could not be statistically distinguished from one imply a sustainable current account balance in India.

Suggested Citation

  • Khundrakpam, Jeevan K. & Ranjan, Rajiv, 2010. "Saving-Investment Nexus and International Capital Mobility in India: Revisiting Feldstein-Horioka Hypothesis," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 45(1), pages 49-66.
  • Handle: RePEc:dse:indecr:0014

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    References listed on IDEAS

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    Cited by:

    1. Phiri, Andrew, 2017. "The Feldstein-Horioka puzzle and the global recession period: Evidence from South Africa using asymmetric cointegration analysis," MPRA Paper 79096, University Library of Munich, Germany.
    2. Khundrakpam, Jeevan Kumar & George, Asish Thomas, 2012. "An Empirical Analysis of the Relationship between WPI and PMI-Manufacturing Price Indices in India," MPRA Paper 50929, University Library of Munich, Germany.
    3. repec:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1156-7 is not listed on IDEAS

    More about this item


    Saving; Investment; Cointegration; ARDL;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth


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