Revisiting the Feldstein–Horioka puzzle with regime switching: New evidence from European countries

Chen, Shyh‐Wei; Shen, Chung‐Hua

doi:10.1016/j.econmod.2015.03.020

Cited by 26 publications

(15 citation statements)

References 66 publications

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“…Many economists, using cross-sectional, time-series, and panel data, applying various econometric techniques, have tested the celebrated Feldstein-Horioka puzzle (FH Puzzle) on the existence of varying degrees of capital mobility. Among these, notable studies dealing with the FH Puzzle using time series and cross-sectional data are Coakley and Kulasi (1997), Narayan (2005), Rocha (2006), Chen and Shen (2015), Ketenci (2012), Ma and Li (2016), Dash (2019), Ko and Funashima (2019), Zargar et al (2019), Bineau (2020), and Akkoyunlu (2020). There are more studies that employ panel data; for example, Ho (2002), Holmes (2005), Kim et al (2005), Murthy (2005Murthy ( , 2009, Payne and Kumazawa (2005), Murthy and Anoruo (2010), Narayan and Narayan (2010), Kumar and Rao (2011), Bangake and Eggoh (2012), Holmes and Otero (2014), Johnson and Lamdin (2014), Hernandez (2015), Bibi and Jalil (2016), Drakos et al (2017), Pata (2018), and Eyuboglu and Uzar (2020).…”

Section: Literature Surveymentioning

confidence: 99%

Capital mobility in Latin American and Caribbean countries: new evidence from dynamic common correlated effects panel data modeling

Murthy

Ketenci

2020

Financ Innov

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This study investigates the degree of capital mobility in a panel of 16 Latin American and 4 Caribbean countries during 1960 to 2017 against the backdrop of the Feldstein-Horioka hypothesis by applying recent panel data techniques. This is the first study on capital mobility in Latin American and Caribbean countries to employ the recently developed panel data procedure of the dynamic common correlated effects modeling technique of Chudik and Pesaran (J Econ 188:393–420, 2015) and the error-correction testing of Gengenbach, Urbain, and Westerlund (Panel error correction testing with global stochastic trends, 2008, J Appl Econ 31:982–1004, 2016). These approaches address the serious panel data econometric issues of cross-section dependence, slope heterogeneity, nonstationarity, and endogeneity in a multifactor error-structure framework. The empirical findings of this study reveal a low average (mean) savings–retention coefficient for the panel as a whole and for most individual countries, as well as indicating a cointegration relationship between saving and investment ratios. The results indicate that there is a relatively high degree of capital mobility in the Latin American and Caribbean countries in the short run, while the long-run solvency condition is maintained, which is due to reduced frictions in goods and services markets causing increase competition. Increased capital mobility in these countries can promote economic growth and hasten the process of globalization by creating a conducive economic environment for FDI in these countries.

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Section: Literature Surveymentioning

confidence: 99%

Capital mobility in Latin American and Caribbean countries: new evidence from dynamic common correlated effects panel data modeling

Murthy

Ketenci

2020

Financ Innov

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“…that the investment and savings ratios are highly correlated in developed countries, which is a sign of low capital mobility (see, for example, Chen & Shen, 2015;Ho, 2002;Hussein, 1998;Jansen, 1996). These findings are contrary to the expectation of a low correlation between investment and savings, particularly in developed OECD countries.…”

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confidence: 83%

The Feldstein–Horioka Puzzle and Structural Breaks: Evidence from the Largest Countries of Asia

Ketenci¹

2016

Margin: The Journal of Applied Economic Research

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The purpose of this paper is to investigate the level of capital mobility in the largest economies of Asia by testing the Feldstein-Horioka puzzle. Panel estimations using quarterly data for the period from 1995 to 2011 have been made for the seven largest economies of Asia, specifically Russia, Japan, South Korea, Turkey, India, Indonesia and China. This group of countries has gained significant economic power in the world over the last decade.Specifically, the growth rates of the sample has for a long period of time exceeded the growth rates of most developed countries. The total GDP adjusted for PPP is far above of the GDP of the EU and NAFTA groups and very close to the G7 group. The paper examines changes in investment savings relationships when the presences of structural shifts -where such existare taken into account. Recently developed panel techniques are employed to examine the investment savings relationship and estimate saving-retention coefficients. As a result of these estimations, countries were divided into two groups consisting of stable and unstable economies. This division of countries allows for more precise estimates of capital mobility.The empirical findings reveal that the Feldstein-Horioka puzzle exists in the groups. The saving-retention coefficient is estimated at 0.804 and 0.839 for the stable and unstable samples, respectively, which indicates a relatively higher level of capital mobility among stable countries. Results indicate that countries with high capital mobility are exposed to the negative effects of international market fluctuations. JEL: F32

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“…The results found a stronger positive relationship between investment and saving during the height of the euro crisis. Using a Markov-switching model for a sample of nine European countries, Chen and Shen (2015) found a shift in the degree of capital mobility, that is, low capital mobility to high capital mobility. The study, therefore, suggests that FH puzzle holds for a specific period of time and hinges upon the regime shifts.…”

Section: Literature Reviewmentioning

confidence: 99%

Does the Feldstein–Horioka puzzle exist among South Asian countries? A regime‐switching approach

Patra

Mohanty

2020

Journal of Public Affairs

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A plethora of literature has been undertaken to study the validity of the Feldstein–Horioka (FH) puzzle. However, divergent views continue to persist in the FH puzzle literature. This study explores the empirical validity of the FH puzzle in the case of South Asian countries using annual data from 1960 to 2017. Both panel data approach and Markov‐switching regression approach are used to empirically analyze the FH puzzle. The results of the cointegration test confirm the long‐run relationships between saving and investment in the selected South Asian countries. The results of Markov‐switching regression confirm that the saving‐retention coefficient has shifted from high to low values and also from low to high values. Thus, the FH puzzle exists for a particular time period and mostly depends on the regime shifts in the South Asian countries. The results of panel fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) methods also confirm that FH puzzle holds for the South Asian countries. Therefore, the study suggests that any saving promotion policies are desirable for enhancing investment among the South Asian regions.

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Revisiting the Feldstein–Horioka puzzle with regime switching: New evidence from European countries

Cited by 26 publications

References 66 publications

Capital mobility in Latin American and Caribbean countries: new evidence from dynamic common correlated effects panel data modeling

Capital mobility in Latin American and Caribbean countries: new evidence from dynamic common correlated effects panel data modeling

The Feldstein–Horioka Puzzle and Structural Breaks: Evidence from the Largest Countries of Asia

Does the Feldstein–Horioka puzzle exist among South Asian countries? A regime‐switching approach

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