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An evidence of Feldstein-Horioka puzzle in selected Asian economies

Author

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  • Harwinder Kaur
  • Vishal Sarin

Abstract

The purpose of the study is to investigate the level of capital mobility in selected economies of Asia by testing the Feldstein-Horioka puzzle. This paper seeks to contribute to the study of relationship between savings and investment in a panel of eight Asian economies namely; China, Japan, India, Hong Kong, Iran, Indonesia, Saudi Arabia, Thailand. Data for investment and savings over the period 1980-2016 has been compiled from the World Development Indicators (WDI) database 2016. Augmented Dickey Fuller test has been applied to confirm the non-stationarity of data. Then, panel cointegration method has been applied to examine the relationship between savings and investment for selected countries. Further, to estimate the value of β (saving retention coefficient) the study used fully modified OLS (FMOLS) and dynamic OLS (DOLS) techniques. The results show that saving and investment are co-integrated for selected panel and results of FMOLS and DOLS indicate a fall in the value of β after crises, which imply that these economies are becoming open to capital flows after Asian crises. Hence the study confirms the evidence of F-H puzzle to explain that high correlation between saving and investment implies lower capital mobility.

Suggested Citation

  • Harwinder Kaur & Vishal Sarin, 2018. "An evidence of Feldstein-Horioka puzzle in selected Asian economies," International Journal of Business and Globalisation, Inderscience Enterprises Ltd, vol. 21(4), pages 454-463.
  • Handle: RePEc:ids:ijbglo:v:21:y:2018:i:4:p:454-463
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