The quantity approach to financial integration: The Feldstein-Horioka criterion revisited

Jan Lemmen and Sylvester Eijffinger

Open Economies Review, 1995, vol. 6, issue 2, 145-165

Abstract: This paper applies the Feldstein-Horioka criterion, that is, the role of savings-investment correlations, to assess the degree of financial integration in the European Community. We establish a link between the Feldstein-Horioka criterion and three other criteria for financial integration: the covered, uncovered, and real interest parity condition. Subsequently, we evaluate the Feldstein-Horioka criterion for financial integration on the basis of its underlying assumptions. The paper performs both cross-section and time-series analyses of savings-investment correlations. The time-series analysis relies on the concept of cointegration. Our major finding is that the Feldstein-Horioka criterion—contrary to what is usually found in world financial markets—is able to explain an increasing degree of financial integration in the European Community. Copyright Kluwer Academic Publishers 1995

Keywords: financial integration; savings; investment; European Community (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (27)

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Working Paper: The Quantity Approach of Financial Integration: The Feldstein-Horioka Criterion Revisited (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:6:y:1995:i:2:p:145-165

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DOI: 10.1007/BF01001234

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