The Feldstein-Horioka puzzle and capital mobility: a review

Abstract

This paper reviews how economists responded to the Feldstein–Horioka (FH) view that a high saving‐investment association across OECD countries implied low capital mobility. This posed an uncomfortable puzzle since the conventional wisdom in most exchange rate and open‐economy macroeconomic models was that capital mobility was high. In the face of a variety of replications, the FH result of a high cross‐section association between saving and investment rates in OECD countries has remained remarkably robust. The debate over whether saving‐investment comovements are informative about capital mobility is still unresolved although the sceptics appear to be in the ascendancy. © 1998 John Wiley & Sons, Ltd.

Capital Mobility and Capital Tax Competition

“…First, the volume of capital flows, including both portfolio capital and foreign direct investment, has grown dramatically, suggesting that capital has become more mobile over time (Hines, 2007). Second, barriers to international capital flows have declined significantly over time and have been accompanied by widespread deregulation of financial markets and dramatic advances in information and communication technology-factors that have operated to increase international capital mobility (Feldstein and Bacchetta, 1991;Coakley, Kulasi and Smith, 1998). Finally, the empirical evidence is generally consistent with perfect capital mobility in the sense that interest rates on deposits of the same maturity and risk characteristics and expressed in the same national currency tend to be equalized (Frankel, 1993;Obstfeld, 1995).…”

“…Given the other evidence, discussed above, which implies significant international capital mobility-as well as the common perception that capital is highly mobile internationally coupled with widespread use of the assumption of perfectly mobile capital in macroeconomic models (Coakley, Kulasi and Smith, 1998)-this contradictory result has been highly provocative and indeed is commonly termed the "Feldstein-Horioka Puzzle." Indeed, the FH result-as well as their interpretation of its implications-has spawned a vast literature.…”

Capital mobility and EU enlargement

“…5 This informational constraint puts them at a disadvantage compared to domestic investors when bidding for an investment project, they thus run the risk of paying too much for domestic firms, and, hence, capital flows are lower than they would be under perfect information. While Gordon and Bovenberg model _______________ 3 See Bayoumi (1990Bayoumi ( , 1998, Coakley et al (1995), Lapp (1996), Montiel (1994), or Taylor (1996 for comprehensive surveys of the empirical and theoretical literature on the issue. 4 See, for example, the results of Bayoumi and Rose (1993) for the United Kingdom.…”

¿Se está rompiendo el mercado español? Una aplicación del enfoque de Feldstein-Horioka

“…Por ello, se convirtió en uno de los enigmas o "puzles" más debatidos en economía internacional (Obstfeld y Rogoff, 2000) e impulsó una línea de investigación que aún se mantiene activa. Los trabajos de Tesar (1991), Obstfeld (1993), Coakley et al (1998) Las reacciones a la conclusión "fuerte" de F-H podrían resumirse en dos líneas de trabajo diferentes. Por un lado, un grupo de autores negaron que ␤ pudiera considerarse una medida válida de la movilidad internacional del capital.…”