Role of foreign direct investment in estimating capital mobility: a reappraisal of Feldstein-Horioka puzzle

Javed Younas

Applied Economics Letters, 2011, vol. 18, issue 12, pages 1133-1137

Abstract: As investment by nonresidents is not subject to inter-temporal budget constraint of the recipient country, it may not belong to Feldstein-Horioka equation. This article finds that capital mobility is remarkably high in both developed and developing countries when Foreign Direct Investment (FDI) is excluded from domestic investment. Moreover, economic openness and financial markets' liberalization are also found to have increased the degree of capital mobility.

Date: 2011
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