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International capital mobility: linking the Feldstein--Horioka puzzle to the trade and equity home bias puzzles


  • Clemens J. M. Kool
  • Linda M. Keijzer


We revisit the Feldstein--Horioka (FH) puzzle using data for 23 Organisation for Economic Co-operation and Development (OECD) countries for the period 1973--2003. We document a sharp decline in the FH coefficient from the mid-1990s onward, supporting the hypothesis of increased economic and financial integration. Subsequently, we extend the literature and use a non-linear specification with interaction terms to empirically show that observed decreases in equity home bias (EHB) and increases in trade openness are structurally linked to the time variation in the FH coefficient. Thus, this paper empirically establishes a structural link between three puzzles in international macroeconomics and finance: the FH puzzle, the EHB puzzle and the trade home bias puzzle. Copyright 2009, Oxford University Press.

Suggested Citation

  • Clemens J. M. Kool & Linda M. Keijzer, 2009. "International capital mobility: linking the Feldstein--Horioka puzzle to the trade and equity home bias puzzles," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 2(2), pages 211-227.
  • Handle: RePEc:oup:cjrecs:v:2:y:2009:i:2:p:211-227

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    References listed on IDEAS

    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
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    3. Sanders, Anthony, 2008. "The subprime crisis and its role in the financial crisis," Journal of Housing Economics, Elsevier, vol. 17(4), pages 254-261, December.
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    Cited by:

    1. Kumar, Saten & Sen, Rahul & Srivastava, Sadhana, 2014. "Does economic integration stimulate capital mobility? An analysis of four regional economic communities in Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 33-50.
    2. Clemens Kool & Erik de Regt & Tom van Veen, 2013. "Money Overhang, Credit Overhang and Financial Imbalances in the Euro Area," CESifo Working Paper Series 4476, CESifo Group Munich.
    3. Gan, Pei-Tha, 2014. "The precise form of financial integration: Empirical evidence for selected Asian countries," Economic Modelling, Elsevier, vol. 42(C), pages 208-219.

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