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Re-examining the Feldstein–Horioka and Sachs' views of capital mobility: A heterogeneous panel setup

Mark Holmes (mark.holmes@waikato.ac.nz) and Jesus Otero

International Review of Economics & Finance, 2014, vol. 33, issue C, 1-11

Abstract: We re-examine two complementary views of international capital mobility using data for 25 OECD countries over the period 1970–2011. Estimation of the original Feldstein–Horioka and Sachs' equations provides mixed evidence of capital mobility, though we do not detect a significant bias towards finding in favour of capital immobility in using time-averaged data. However, potential bias in cross-sectional estimation motivates us to examine the data as a heterogeneous panel which allows us to control for the effects of cross-sectional dependence and endogeneity. In addressing the Feldstein–Horioka puzzle, application of the CCEMG estimator of Pesaran (2006) to the Feldstein–Horioka and Sachs' equations points towards greater (though not perfect) capital mobility than hitherto found.

Keywords: Feldstein–Horioka; Capital mobility; Current account; Heterogeneous panel (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:33:y:2014:i:c:p:1-11

DOI: 10.1016/j.iref.2014.03.002

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