International Financial Market Integration and The Feldstein–Horioka Puzzle: Evidence from Emerging Market Economies

Naib Alakbarov () and Yılmaz Bayar ()
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Naib Alakbarov: Faculty of Economics and Administrative Science, Usak University, Usak, Turkey.
Yılmaz Bayar: Faculty of Economics and Administrative Science, Bandirma Onyedi Eylul University, Balikesir, Turkey.

Journal for Economic Forecasting, 2021, issue 1, 143-165

Abstract: Financial liberalization and globalization gained speed as of late 1970s with collapse of Bretton Woods system and the global integration raised considerably, especially during the past four decades. Foreign capital flows in terms of foreign direct investments and portfolio investments increased, especially in the emerging markets experiencing high growth rates, with relatively cheap, but qualified labor. This study tests the validity of the Feldstein-Horioka puzzle in 21 emerging markets during the 1994-2016 period with the panel cointegration test of Westerlund’s (2008) Durbin-Hausman panel cointegration test and the panel causality test of Dumitrescu and Hurlin (2012). The findings revealed that domestic investments were mostly financed through external capital inflows; therefore, the findings contradicted the results of Feldstein-Horioka (1980) in the sample of emerging market economies.

Keywords: domestic savings; domestic investments; Feldstein-Horioka puzzle; international financial market integration; emerging market economies; panel data analysis (search for similar items in EconPapers)
JEL-codes: C33 E21 E22 F37 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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