The Feldstein-Horioka Puzzle, Saving-Investment Causality and International Financial Market Integration

Christopher Tsoukis and Ahmed Alyousha
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Ahmed Alyousha: Bahrain Centre for Studies and Research, Postal: Bahrain Centre for Studies and Research

Journal of Economic Integration, 2001, vol. 16, 262-277

Abstract:

We review the Feldstein-Horioka (1980) approach to the measurement of the degree of international capital mobility by the size of the saving-investment correlation; we conclude that it raises many problems. Instead, we employ Granger causality tests to measure capital mobility using quarterly data for a sample of 7 industrialised economies for a) the post-war period; and b) the 1980s and 1990s. For the cointegrated saving and investment ratios in the entire sample (Australia-UK), causality goes from saving to investment. For the single (German) cointe-grated pair of the 1980s and 1990s, causality runs in the opposite direction. We interpret this as evidence of increased international financial market integration post-1980.

Keywords: International Financial Market Integration; Capital Mobility; Granger Causality (search for similar items in EconPapers)
JEL-codes: F36 F41 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0164

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