Terrorism, openness and the Feldstein–Horioka paradox

Javed Younas

European Journal of Political Economy, 2015, vol. 38, issue C, 1-11

Abstract: This paper investigates how terror threats and international openness affect the savings retention coefficient in the Feldstein–Horioka equation. We find that terrorism marginally increases the size of this coefficient, which may result from an increase in the precautionary saving motives. However, even a small increase in openness offsets this effect and significantly lowers the propensity to retain domestic savings for investment. This suggests that, given more channels, capital leaves domestic boundaries to land in safe places abroad. At least partly, the results explain the paradoxical finding in the literature that capital is more mobile in developing countries, even though they are less open. We also find that all types of terrorism reduce investment.

Keywords: Feldstein–Horioka paradox; Capital mobility; Terrorism; Globalization (search for similar items in EconPapers)
JEL-codes: D74 F30 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:38:y:2015:i:c:p:1-11

DOI: 10.1016/j.ejpoleco.2014.12.005

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