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A new look at the Feldstein-Horioka puzzle : an "European-regional" perspective

Listed author(s):
  • Jérôme Héricourt

    ()

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Mathilde Maurel

    ()

    (ROSES - Réformes et Ouverture des Systèmes Economiques post-Socialistes - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

The purpose of this paper consists in assessing the extent of financial integration in the European Union using the Feldstein-Horioka criterion. More precisely, we test the cross-correlation of savings and investment rates across the regions of the European Union, using regional data from Regio and national statistical offices, over the period 1995-2000. Several important outcomes are reported by our article. First, we find that the financial integration seems to be realized inside each country, and we are able to rationalize the few puzzles we face. Second, we find that overall financial integration between EU regions is almost complete. After performing additional investigations on consistent sub-groups of regions, however, our analysis discards the illusion that the sole suppression of institutional barriers to capital mobility would be sufficient to achieve a perfect financial integration. In that spirit, our main finding is that History, language, borders and distance as a proxy for transaction and information costs, still matter.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00196383.

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Date of creation: Oct 2005
Publication status: Published in Cahiers de la Maison des Sciences Economiques 2005.70 - ISSN : 1624-0340. 2005
Handle: RePEc:hal:cesptp:halshs-00196383
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00196383
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