A Re-Evaluation of the Feldstein-Horioka Puzzle in the Eurozone

Abstract

In this paper we re-evaluate the capital immobility hypothesis of Feldstein and Horioka (1980) for the case of the European Union and the Eurozone, based on long-run regressions. We employ the Long Run Derivative proposed by Fischer and Seater (1993) in order to examine capital mobility as a longrun phenomenon. In order to enhance the robustness of our results we also perform panel causality tests on our data as it is a common approach in this setting. Our empirical findings provide no evidence in favor of the capital immobility hypothesis. In fact, we reject capital immobility even before the creation of the European Union, the introduction of the Eurozone or the 2008 global financial crisis.

International and Regional Capital Mobility in Latin American Countries

“…Some studies reveal high saving-retention estimates, an indicator of low capital mobility (Ketenci, 2010;Di Iorio & Fachin, 2014;Drakos et al, 2017Drakos et al, , 2018Khan, 2017;Ginama et al, 2018Ginama et al, , 2021. In contrast, other empirical works find little evidence in favor of the puzzling saving-investment relationship (Georgopoulos & Hejazi, 2009;Rao et al, 2010;Kumar & Rao, 2011;Costantini & Gutierrez, 2013;Holmes & Otero, 2016;Katsimi & Zeoga, 2016;Tursoy & Faisal, 2019;Pata, 2018;Dash, 2019;Plakandaras et al, 2019). Even though there is a plethora of empirical studies investigating the Feldstein-Horioka puzzle in advanced economies, there are not many studies dealing with the puzzle in emerging economies, especially Latin American and Caribbean countries.…”