The quantity approach to financial integration: The Feldstein-Horioka criterion revisited
This paper applies the Feldstein-Horioka criterion, that is, the role of savings-investment correlations, to assess the degree of financial integration in the European Community. We establish a link between the Feldstein-Horioka criterion and three other criteria for financial integration: the covered, uncovered, and real interest parity condition. Subsequently, we evaluate the Feldstein-Horioka criterion for financial integration on the basis of its underlying assumptions. The paper performs both cross-section and time-series analyses of savings-investment correlations. The time-series analysis relies on the concept of cointegration. Our major finding is that the Feldstein-Horioka criterion—contrary to what is usually found in world financial markets—is able to explain an increasing degree of financial integration in the European Community. Copyright Kluwer Academic Publishers 1995
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephen M. Miller, 1988. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us? Comment on Dooley, Frankel, and Mathieson," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 391-396, June.
- Obstfeld, Maurice, 1986.
"Capital mobility in the world economy: Theory and measurement,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 24(1), pages 55-103, January.
- Maurice Obstfeld, 1985. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
- Sinn, Stefan, 1992. "Saving-Investment Correlations and Capital Mobility: On the Evidence from Annual Data," Economic Journal, Royal Economic Society, vol. 102(414), pages 1162-70, September.
- Maurice Obstfeld, 1986. "How Integrated are World Capital Markets? Some New Tests," NBER Working Papers 2075, National Bureau of Economic Research, Inc.
- Martin Feldstein & Philippe Bacchetta, 1989.
"National Saving and International Investment,"
NBER Working Papers
3164, National Bureau of Economic Research, Inc.
- Jansen, W.J. & Schulze, G.G., 1993.
"Theory-Based Measurement of the Saving-Investment Correlation with an Application to Norway,"
9302-g, Erasmus University of Rotterdam - Institute for Economic Research.
- Jansen, W Jos & Schulze, Gunther G, 1996. "Theory-Based Measurement of the Saving-Investment Correlation with an Application to Norway," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 116-32, January.
- Jansen, Willem Jos & Schulze, Günther G., 1993. "Theory-based measurement of the saving-investment correlation with an application to Norway," Discussion Papers, Series II 205, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
- Baxter, M. & Crucini, M.J., 1990.
"Explaining Saving/Investment Correlation,"
RCER Working Papers
224, University of Rochester - Center for Economic Research (RCER).
- Jeffrey A. Frankel, 1985.
"International capital mobility and crowding-out in the U.S. economy: imperfect integration of financial markets or of goods markets?,"
Federal Reserve Bank of St. Louis, pages 33-74.
- Jeffrey A. Frankel, 1985. "International Capital Mobility and Crowding Out in the U.S. Economy: Imperfect Integration of Financial Markets or of Goods Markets?," NBER Working Papers 1773, National Bureau of Economic Research, Inc.
- Martin Feldstein & Charles Horioka, 1979.
"Domestic Savings and International Capital Flows,"
NBER Working Papers
0310, National Bureau of Economic Research, Inc.
- Lemmen, J.J.G. & Eijffinger, S.C.W., 1992.
"The degree of financial integration in the European Community,"
FEW 540, Tilburg University, School of Economics and Management.
- Lemmen, J.J.G. & Eijffinger, S.C.W., 1993. "The degree of financial integration in the European Community," Other publications TiSEM 1d5446e8-2580-40dc-aee9-5, Tilburg University, School of Economics and Management.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
- Hakkio, Craig S. & Rush, Mark, 1991.
"Cointegration: how short is the long run?,"
Journal of International Money and Finance,
Elsevier, vol. 10(4), pages 571-581, December.
- D. F. I. Folkerts-Landau & Donald J. Mathieson & Morris Goldstein & Liliana Rojas-SuÃ¡rez & JosÃ© SaÃºl Lizondo & Timothy D. Lane, 1991. "Determinants and Systemic Consequences of International Capital Flows," IMF Occasional Papers 77, International Monetary Fund.
- Martin Feldstein, 1982.
"Domestic Saving and International Capital Movements in the Long Run and the Short Run,"
NBER Working Papers
0947, National Bureau of Economic Research, Inc.
- Martin Feldstein, 1991. "Domestic Saving and International Capital Movements in the Long Run and the Short Run," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 331-353 National Bureau of Economic Research, Inc.
- Feldstein, Martin, 1983. "Domestic saving and international capital movements in the long run and the short run," European Economic Review, Elsevier, vol. 21(1-2), pages 129-151.
- Sargan, John Denis & Bhargava, Alok, 1983. "Testing Residuals from Least Squares Regression for Being Generated by the Gaussian Random Walk," Econometrica, Econometric Society, vol. 51(1), pages 153-74, January.
- Golub, Stephen S., 1990. "International capital mobility: net versus gross stocks and flows," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 424-439, December.
- Frankel, Jeffrey A, 1992. "Measuring International Capital Mobility: A Review," American Economic Review, American Economic Association, vol. 82(2), pages 197-202, May.
- Murphy, Robert G., 1984. "Capital mobility and the relationship between saving and investment rates in OECD countries," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 327-342, December.
- Harberger, Arnold C, 1980. "Vignettes on the World Capital Market," American Economic Review, American Economic Association, vol. 70(2), pages 331-37, May.
- Miller, Stephen M., 1988. "Are saving and investment co-integrated?," Economics Letters, Elsevier, vol. 27(1), pages 31-34.
- Tobin, James, 1983. "'Domestic saving and international capital movements in the long run and the short run' by M. Feldstein," European Economic Review, Elsevier, vol. 21(1-2), pages 153-156.
- Alok Bhargava, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 369-384.
- Monadjemi, M, 1990. "Testing the Degree of International Capital Mobility," Australian Economic Papers, Wiley Blackwell, vol. 29(54), pages 30-39, June.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
When requesting a correction, please mention this item's handle: RePEc:kap:openec:v:6:y:1995:i:2:p:145-165. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.