A Pairwise-Based Approach to Examine the Feldstein-Horioka Condition of International Capital Mobility

Mark Holmes () and Jesus Otero

Working Papers in Economics from University of Waikato

Abstract: We propose a pairwise procedure to test the Feldstein-Horioka condition of capital mobility. In contrast to the existing approach, we explicitly examine the relationship between domestic investment and foreign savings rather than domestic savings. In terms of addressing the Feldstein-Horioka puzzle, our results based on a panel of OECD and emerging market economies initially suggests that the depth and extent of capital mobility remains generally limited, and that mobility has increased over the past twenty years. However, in contrast to existing studies, we find that capital mobility between Euro and EU pairs is more extensive than between pairs that involve other countries. If our sample is expanded to include emerging markets, we find that capital mobility has also increased though is weaker than for OECD economies. We provide additional insight in terms of consistency between our assessment of capital mobility based on the Feldstein-Horioka condition (a quantity approach) and a price approach based on real interest rate differentials.

Keywords: Feldstein-Horioka; capital mobility; pairwise real interest rates (search for similar items in EconPapers)
JEL-codes: F3 F4 F6 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2015-01-31
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://repec.its.waikato.ac.nz/wai/econwp/1501.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:15/01

Access Statistics for this paper

More papers in Working Papers in Economics from University of Waikato Private Bag 3105, Hamilton, New Zealand, 3240. Contact information at EDIRC.
Bibliographic data for series maintained by Geua Boe-Gibson ().