A new look at the Feldstein-Horioka puzzle: an "European-regional" perspective

Jérôme Héricourt and Mathilde Maurel

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Abstract: The purpose of this paper consists in assessing the extent of financial integration in the European Union using the Feldstein-Horioka criterion. More precisely, we test the cross-correlation of savings and investment rates across the regions of the European Union, using regional data from Regio and national statistical offices, over the period 1995-2000. Several important outcomes are reported by our article. First, we find that the financial integration seems to be realized inside each country, and we are able to rationalize the few puzzles we face. Second, we find that overall financial integration between EU regions is almost complete. After performing additional investigations on consistent sub-groups of regions, however, our analysis discards the illusion that the sole suppression of institutional barriers to capital mobility would be sufficient to achieve a perfect financial integration. In that spirit, our main finding is that History, language, borders and distance as a proxy for transaction and information costs, still matter.

Keywords: Feldstein-Horioka puzzle; regional savings; investment; capital market; capital flows; flux financiers; Enigme de Feldstein-Horioka; épargne et investissement régionaux; marchés de capitaux (search for similar items in EconPapers)
Date: 2005-10
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00196383v1
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Published in 2005

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Related works:
Journal Article: A new look at the Feldstein-Horioka puzzle: a European-regional perspective (2006)
Working Paper: A New Look at the Feldstein-Horioka Puzzle: A “European-Regional” Perspective (2006)
Working Paper: A New Look at the Feldstein-Horioka Puzzle: A “European-Regional” Perspective (2006)
Working Paper: A new look at the Feldstein-Horioka puzzle: an "European-regional" perspective (2005)
Working Paper: A new look at the Feldstein-Horioka puzzle: an "European-Regional" perspective (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00196383

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