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CAPITAL MOBILITY AND THE FELDSTEIN–HORIOKA PUZZLE: RE‐EXAMINATION OF LESS DEVELOPED COUNTRIES*

James Payne () and Risa Kumazawa

Manchester School, 2006, vol. 74, issue 5, 610-616

Abstract: This empirical study extends the work of Coakley et al. (Manchester School, Vol. 72 (2004), pp. 569–590) with respect to the Feldstein–Horioka puzzle for a sample of 47 developing countries. The study examines the savings–investment relationship through a comparison of the Feldstein–Horioka cross‐section estimator results with the results obtained from a mean group estimator allowing for the cross‐section dependence and permanent shocks to the current account. The mean group estimator results indicate higher capital mobility with a savings coefficient of 0.36, 25 per cent lower than the estimates based on the cross‐section estimator, for the whole sample with little variation across subregions.

Date: 2006
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