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

Abstract

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

Revisiting Feldstein–Horioka Puzzle: Evidence from SAARC Economies

“…Khundrakpam and Ranjan (2010) found a weaker relationship between saving and investment rates with the inclusion of the post-reform period which depicts the era of more liberalised capital flows. Ketenci (2016) found lower saving retention coefficient and thus, higher international capital mobility in the post-Asian crisis period. In another study, Phiri (2017) found increase in international capital mobility in the post-global financial crisis period thereby weakening the F–H high correlation between domestic savings and investment.…”

“…This, on the one hand, implies the presence of a tendency for international capital mobility, and on the other hand, indicates fiscal deficit induced deteriorating current account balance (CAB) position in South Asian economies. Given the argument that countries with relatively higher capital mobility are more likely to be exposed to the adverse effects of international market fluctuations (Ketenci, 2016), the novelty of this study is the inclusion of the global financial recession shock (2007)(2008)(2009) in explaining F-H puzzle in the post-liberalisation era. The remaining of the study is organised as follows: Section II reviews the relevant literature to justify the research problem and set the building block of the study; Section III presents observations from the trends in domestic savings and investment in the SAARC region; Section IV elaborates the data and methodology used in the study; Section V draws inferences from the empirical analyses; Section VI makes the concluding remark; and Section VII notes down the scope for further study while pointing out the limitations.…”

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

“…They found the cointegrating relationships between national saving and investment and also found a higher degree of relationship between capital mobility and trade openness for Asian nations. Ketenci (2016) revisited the FH puzzle for seven selected largest economies of Asia using quarterly data from 1995 to 2011. The empirical results found evidence of moderate capital mobility in stable countries (Japan, South Korea, and India) and relatively higher capital mobility in unstable countries (Russia, Turkey, Indonesia, and China).…”

The Feldstein-Horioka Puzzle: Evidence From Emerging Countries

“…Most of these studies have focused on Asian countries (Abdul Latif et al, 2015;Adebola and Dahalan, 2012;Ang, 2007;Kaur and Sarin, 2019;Ketenci, 2016;Khundrakpam and Ranjan, 2010;Narayan, 2005;Yildirim and Orman, 2018). While some of them have confirmed a high international capital mobility (Ketenci, 2016;Yildirim and Orman, 2018), others have found that there is a low capital mobility (Abdul Latif et al, 2015;Adebola and Dahalan, 2012;Ang, 2007;Narayan, 2005;Kaur and Sarin, 2019;Kkhundrakpam and Ranjan, 2010;Yildirim and Orman, 2018). In some other studies, it has been found that there is low capital mobility for developing countries (Grullon, 2016;Phiri, 2019;Tursoy and Faisal, 2019).…”