The 'Real' Explanation of the Feldstein-Horioka Puzzle

Nicholas Ford and Charles Horioka (horioka@rieb.kobe-u.ac.jp)

No 2016-07, AGI Working Paper Series from Asian Growth Research Institute

Abstract: This paper shows that global capital markets cannot, by themselves, chieve net transfers of financial capital between countries and that both the integration of global financial markets as well as the integration of global goods markets are needed to achieve net transfers of capital between countries. Frictions (barriers to mobility) in one or both of these markets can impede net transfers of capital between countries, produce the Feldstein and Horioka (1980) results, and prevent real interest rates from being equalized across countries. Moreover, there is empirical evidence that barriers to the mobility of goods and services are an important obstacle to international capital mobility.

Keywords: Barriers to capital mobility; Feldstein-Horioka paradox; Feldstein-Horioka puzzle; financial market integration; goods market integration; international capital flows; international capital mobility; net transfers of capital; real interest rate equalization; real interest rate parity; saving-investment correlations; trade frictions; Barriers to capital mobility; Feldstein-Horioka paradox; Feldstein-Horioka puzzle; financial market integration; goods market integration; international capital flows; international capital mobility; net transfers of capital; real interest rate equalization; real interest rate parity; saving-investment correlations; trade frictions; F21; F32; F36; G15 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The ‘real’ explanation of the Feldstein–Horioka puzzle (2017)
Working Paper: The 'Real' Explanation of the Feldstein-Horioka Puzzle (2016)
Working Paper: The "Real" Explanation of the Feldstein-Horioka Puzzle (2016)
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