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The Feldstein-Horioka Puzzle, Saving-Investment Causality and International Financial Market Integration

Author

Listed:
  • Tsoukis, Christopher

    () (University of Hull)

  • Alyousha, Ahmed

    (Bahrain Centre for Studies and Research)

Abstract

We review the Feldstein-Horioka (1980) approach to the measurement of the degree of international capital mobility by the size of the saving-investment correlation; we conclude that it raises many problems. Instead, we employ Granger causality tests to measure capital mobility using quarterly data for a sample of 7 industrialised economies for a) the post-war period; and b) the 1980s and 1990s. For the cointegrated saving and investment ratios in the entire sample (Australia-UK), causality goes from saving to investment. For the single (German) cointe-grated pair of the 1980s and 1990s, causality runs in the opposite direction. We interpret this as evidence of increased international financial market integration post-1980.

Suggested Citation

  • Tsoukis, Christopher & Alyousha, Ahmed, 2001. "The Feldstein-Horioka Puzzle, Saving-Investment Causality and International Financial Market Integration," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 262-277.
  • Handle: RePEc:ris:integr:0164
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    Citations

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    Cited by:

    1. Piotr Misztal, 2011. "The Feldstein-Horioka Hypothesis in Countries with Varied Levels of Economic Development," Contemporary Economics, University of Finance and Management in Warsaw, vol. 5(2), June.
    2. Kant, Chander, 2005. "Capital mobility among advanced countries," Journal of Policy Modeling, Elsevier, vol. 27(9), pages 1067-1081, December.
    3. Sonia Di Giannatale & María José Roa, 2016. "Formal Saving in Developing Economies: Barriers, Interventions, and Effects," IDB Publications (Working Papers) 8107, Inter-American Development Bank.
    4. Huseyin Kalyoncu & Naveed Naqvi & Christopher Tsoukis, 2004. "Industrial Production and the Current Account: Theory and Panel Data Evidence from the OECD," Money Macro and Finance (MMF) Research Group Conference 2004 72, Money Macro and Finance Research Group.

    More about this item

    Keywords

    International Financial Market Integration; Capital Mobility; Granger Causality;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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