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Feldstein-Horioka Paradox Revisited

Listed author(s):
  • Hiroshi Fujiki
  • Yukinobu Kitamura

A central concern in the field of international finance is always capital mobility. Feldstein-Horioka(1980) propose a simple test for international capital mobility and obtain a sign of very low capital mobility. Their interesting result is often described as the Feldstein-Horioka paradox. This paper re-examines their study using panel data analysis. Following the standard model selection procedure, preferred estimators of the elasticity of domestic investment-GDP ratio on domestic saving-GDP ratio are always significantly lower than one. In the light of our results, the Feldstein-Horioka paradox turns out to be not so robust because of cross country heterogeneities.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number a298.

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Date of creation: Oct 1994
Handle: RePEc:hit:hituec:a298
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