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The Feldstein-Horioka puzzle and law

  • Hiroshi Gunji


    (Japan Society for the Promotion of Science)

In this paper, we introduce a proxy for the legal protection of investors, a dummy variable that indicates legal origins, into the Feldstein and Horioka (1980, Economic Journal 90) saving-investment regression. The estimations show that in the French-civil-law countries, which have the weakest investor protection, the domestic investment rates are generally less strongly correlated with the domestic saving rates. This implies that in countries with less investor protection, the capital resulting from an increase of domestic saving tends to flow to foreign countries with stronger investor protection, rather than into domestic investment.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 11 (2003)
Issue (Month): 1 ()
Pages: 1-12

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Handle: RePEc:ebl:ecbull:eb-03k00001
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  1. Andrei Shleifer & Daniel Wolfenson, 2000. "Investor Protection and Equity Markets," NBER Working Papers 7974, National Bureau of Economic Research, Inc.
  2. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  3. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
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