IDEAS home Printed from https://ideas.repec.org/a/vrs/ecobur/v9y2023i3p239-264n8.html
   My bibliography  Save this article

Does regional trade integration reinforce or weaken capital mobility? New evidence from four free trade areas

Author

Listed:
  • Ganic Mehmed

    (1 International University of Sarajevo, Hrasnicka cesta 15, 71 000, Sarajevo, Bosnia and Herzegovina)

  • Novalic Amila

    (2 International University of Sarajevo, Hrasnicka cesta 15, 71 000, Sarajevo, Bosnia and Herzegovina)

Abstract

The study aims to empirically determine whether a higher level of trade openness and the presence of better legal protection for investors enhances the impact of trade bloc membership on capital mobility based on four trading blocs: Eurasian Economic Union (EAEU), Central American and Dominican Republic Free Trade Agreement (CAFTADR), Central European Free Trade Agreement (CEFTA), and the Pacific Alliance. This study employs the fully modified and dynamic ordinary least squares estimators and a panel quantile regression cointegration estimator. The study finds that a country’s affiliation with a trade bloc improves capital mobility in the whole group and EAEU region, low capital mobility in the Pacific Alliance region and moderate low capital mobility in the CAFTA-DR region. The legal protection system alone provided for the investors does not improve the level of capital mobility unless its interaction with investment is included. Also the study reveals that high trade openness does not necessarily lead to better capital mobility for the studied trade blocs.

Suggested Citation

  • Ganic Mehmed & Novalic Amila, 2023. "Does regional trade integration reinforce or weaken capital mobility? New evidence from four free trade areas," Economics and Business Review, Sciendo, vol. 9(3), pages 239-264, October.
    • Handle: RePEc:vrs:ecobur:v:9:y:2023:i:3:p:239-264:n:8
    DOI: 10.18559/ebr.2023.3.795
    as

    Download full text from publisher

    File URL: https://doi.org/10.18559/ebr.2023.3.795
    Download Restriction: no
    File URL: https://libkey.io/10.18559/ebr.2023.3.795?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Anastassios A. Drakos & Georgios P. Kouretas & Prodromos Vlamis, 2018. "Saving, investment and capital mobility in EU member countries: a panel data analysis of the Feldstein–Horioka puzzle," Applied Economics, Taylor & Francis Journals, vol. 50(34-35), pages 3798-3811, July.
    2. Natalya Ketenci, 2015. "Capital mobility in the panel GMM framework: Evidence from EU members," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 12(1), pages 3-19, July.
    3. Shleifer, Andrei & Wolfenzon, Daniel, 2002. "Investor protection and equity markets," Journal of Financial Economics, Elsevier, vol. 66(1), pages 3-27, October.
    4. James Payne & Risa Kumazawa, 2005. "Capital mobility, foreign aid, and openness: further panel data evidence from sub-Saharan Africa," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(1), pages 122-126, March.
    5. Mohammad, Masud Alam & Mohammad, Rafiqul Islam, 2010. "Revisiting the Feldstein-Horioka Hypothesis of savings, investment and capital mobility: evidence from 27 EU countries," MPRA Paper 39383, University Library of Munich, Germany.
    6. Holmes, Mark J., 2005. "What do Savings-Investment Correlations tell us about the International Capital Mobility of Less Developed Countries?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 590-603.
    7. Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, vol. 29(4), pages 1450-1460.
    8. James R. MARKUSEN, 2021. "Factor Movements And Commodity Trade As Complements," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 15, pages 325-340, World Scientific Publishing Co. Pte. Ltd..
    9. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 239-253.
    10. M. Hashem Pesaran & Aman Ullah & Takashi Yamagata, 2008. "A bias-adjusted LM test of error cross-section independence," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 105-127, March.
    11. 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.
    12. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    13. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    14. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    15. Martin Feldstein & Philippe Bacchetta, 1991. "National Saving and International Investment," NBER Chapters, in: National Saving and Economic Performance, pages 201-226, National Bureau of Economic Research, Inc.
    16. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 653-670, November.
    17. Jansen, W. Jos, 2000. "International capital mobility: evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 507-511, August.
    18. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    19. Tesar, Linda L., 1991. "Savings, investment and international capital flows," Journal of International Economics, Elsevier, vol. 31(1-2), pages 55-78, August.
    20. Tamim Bayoumi, 1990. "Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior?," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 360-387, June.
    21. 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.
    22. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    23. Pedroni, Peter, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-670, Special I.
    24. Vasudeva N. R. Murthy & Natalya Ketenci, 2020. "Capital mobility in Latin American and Caribbean countries: new evidence from dynamic common correlated effects panel data modeling," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-17, December.
    25. Alan M. Taylor, 1996. "International Capital Mobility in History: The Saving-Investment Relationship," NBER Working Papers 5743, National Bureau of Economic Research, Inc.
    26. Alan M. Taylor, 1996. "International Capital Mobility in History: Purchasing-Power Parity in the Long Run," NBER Working Papers 5742, National Bureau of Economic Research, Inc.
    27. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    28. Irina Syssoyeva-Masson & João de Sousa Andrade, 2015. "Capital Mobility in the Enlarged Europe: A New Look at the Feldstein-Horioka Puzzle using a Quantile Regression Approach," Revue d'économie politique, Dalloz, vol. 125(4), pages 571-599.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Onur ÖZDEMIR, 2022. "High-Income Countries and Feldstein-Horioka Puzzle: Econometric Evidence from Dynamic Common-Correlated Effects Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 45-67, April.
    2. Rustam Jamilov, 2013. "J-Curve Dynamics and the Marshall–Lerner Condition: Evidence from Azerbaijan," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 19(3), pages 313-323, February.
    3. 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.
    4. João Sousa Andrade, 2007. "L’Intégration Européenne et la Soutenabilité Externe de l’Union Européenne: une application de la thèse de Feldstein-Horioka," GEMF Working Papers 2007-05, GEMF, Faculty of Economics, University of Coimbra.
    5. Naib ALAKBAROV & Yılmaz BAYAR, 2021. "International Financial Market Integration and The Feldstein–Horioka Puzzle: Evidence from Emerging Market Economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 143-165, December.
    6. Bangake, Chrysost & Eggoh, Jude C., 2011. "The Feldstein-Horioka puzzle in African countries: A panel cointegration analysis," Economic Modelling, Elsevier, vol. 28(3), pages 939-947, May.
    7. Ibrahim Raheem & Kazeem Ajide & Oluwatosin Adeniyi, 2015. "Is there a role for governance in the saving-investment nexus for Sub-Saharan Africa?," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 17(2), pages 120-134, October.
    8. Yannick BINEAU, 2010. "A Empirical Assessment of the Feldstein and Horioka Literature," EcoMod2010 259600030, EcoMod.
    9. Apergis, Nicholas & Tsoumas, Chris, 2009. "A survey of the Feldstein-Horioka puzzle: What has been done and where we stand," Research in Economics, Elsevier, vol. 63(2), pages 64-76, June.
    10. Pilbeam, K. & Litsios, I., 2015. "An Empirical Analysis of the Nexus between Investment, Fiscal Balances and Current Account Balances in Greece, Portugal and Spain," Working Papers 15/18, Department of Economics, City University London.
    11. Jamilov, Rustam, 2012. "Capital mobility in the Caucasus," MPRA Paper 38184, University Library of Munich, Germany, revised Apr 2012.
    12. Kim, Hongkee & Oh, Keun-Yeob & Jeong, Chan-Woo, 2005. "Panel cointegration results on international capital mobility in Asian economies," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 71-82, February.
    13. Mariam Camarero & Alejandro Muñoz & Cecilio Tamarit, 2021. "50 Years of Capital Mobility in the Eurozone: Breaking the Feldstein-Horioka Puzzle," Open Economies Review, Springer, vol. 32(5), pages 867-905, November.
    14. Litsios, Ioannis & Pilbeam, Keith, 2017. "An empirical analysis of the nexus between investment, fiscal balances and current account balances in Greece, Portugal and Spain," Economic Modelling, Elsevier, vol. 63(C), pages 143-152.
    15. Ömer Yalçınkaya & İbrahim Hüseyni & Ali Kemal Çelik, 2017. "The Impact of Total Factor Productivity on Economic Growth for Developed and Emerging Countries: A Second-generation Panel Data Analysis," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 11(4), pages 404-417, November.
    16. Mariam Camarero & Alejandro Muñoz & Cecilio Tamarit, 2022. "The rise and fall of global financial flows in EU 15: new evidence using dynamic panels with common correlated effects," Working Papers 2212, Department of Applied Economics II, Universidad de Valencia.
    17. Duran, Hasan Engin & Ferreira-Lopes, Alexandra, 2022. "The Revival Of The Feldstein-Horioka Puzzle And Moderation Of Capital Flows After The Global Financial Crisis (2008/09)," Research in International Business and Finance, Elsevier, vol. 60(C).
    18. Shigeyuki Hamori & Naoko Hamori, 2009. "Introduction of the Euro and the Monetary Policy of the European Central Bank," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7169, January.
    19. Qamruzzaman, Md, 2022. "Nexus between renewable energy, foreign direct investment, and agro-productivity: The mediating role of carbon emission," Renewable Energy, Elsevier, vol. 184(C), pages 526-540.
    20. Abdul Mansoor & Baserat Sultana & Romana Saeed, 2018. "Analyzing the Savings-Investment Trend in a Panel of G-7 Countries," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(2), pages 147-154.

    More about this item

    Keywords

    regional integration; capital mobility; trading blocs; panel cointegration estimators;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:ecobur:v:9:y:2023:i:3:p:239-264:n:8. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.sciendo.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.