The Feldstein-Horioka Puzzle in India: Some Asymmetric Evidence

Abstract

This paper examines the Feldstein-Horioka (FH) hypothesis for India using the non-linear autoregressive distributed lag model and the Hatemi-J asymmetric causality test. The empirical findings show: (1) the validity of the FH puzzle for the Indian economy, which implies the presence of imperfect capital mobility; (2) that positive (negative) saving causes positive (negative) investment; and (3) negative (positive) saving does not cause positive (negative) investment.