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A simple test of the role of foreign direct investment in the Feldstein- Horioka puzzle

  • G. Rossini
  • P. Zanghieri

The purpose of this article is to test the dependency of domestic investment on domestic saving in the Feldstein-Horioka spirit. Its innovation is to use a definition of investment that does not include foreign direct investment. It does so since FDI should not be considered in the intertemporal budget constraint of a recipient country and therefore should not be related to domestic saving in a meaningful way. Once it adopts, as the dependent variable, pure domestic investment the result is a weakened relationship between internal saving and investment.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 10 (2003)
Issue (Month): 1 ()
Pages: 39-41

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Handle: RePEc:taf:apeclt:v:10:y:2003:i:1:p:39-41
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  1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  2. Sachsida, Adolfo & Caetano, Marcelo Abi-Ramia, 2000. "The Feldstein-Horioka puzzle revisited," Economics Letters, Elsevier, vol. 68(1), pages 85-88, July.
  3. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," International Trade 0012003, EconWPA.
  4. Jansen, W. Jos, 1997. "Can the intertemporal budget constraint explain the Feldstein-Horioka puzzle?," Economics Letters, Elsevier, vol. 56(1), pages 77-83, September.
  5. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1996. "Current Account Solvency and the Feldstein-Horioka Puzzle," Economic Journal, Royal Economic Society, vol. 106(436), pages 620-27, May.
  6. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  7. 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 169-88, April.
  8. 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.
  9. Hussein, Khaled A., 1998. "International capital mobility in OECD countries: The Feldstein-Horioka 'puzzle' revisited," Economics Letters, Elsevier, vol. 59(2), pages 237-242, May.
  10. World Bank, 2000. "World Development Indicators 2000," World Bank Publications, The World Bank, number 13828.
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