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The Feldstein-Horioka Puzzle and Capital Mobility: A Review

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  • Coakley, Jerry
  • Kulasi, Farida
  • Smith, Ron

Abstract

This paper reviews how economists responded to the Feldstein-Horioka (FH) view that a high saving-investment association across OECD countries implied low capital mobility. This posed an uncomfortable puzzle since the conventional wisdom in most exchange rate and open-economy macroeconomic models was that capital mobility was high. In the face of a variety of replications, the FH result of a high cross-section association between saving and investment rates in OECD countries has remained remarkably robust. The debate over whether saving-investment comovements are informative about capital mobility is still unresolved although the skeptics appear to be in the ascendancy. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1998. "The Feldstein-Horioka Puzzle and Capital Mobility: A Review," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(2), pages 169-188, April.
  • Handle: RePEc:ijf:ijfiec:v:3:y:1998:i:2:p:169-88
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