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The Feldstein-Horioka Puzzle: Evidence From Emerging Countries

Year 2020, Issue: 55, 141 - 158, 27.04.2020
https://doi.org/10.18070/erciyesiibd.610470

Abstract

This paper examines the saving-investment nexus and the level of capital mobility for the BRICS and Fragile Five countries within the scope of the Feldstein-Horioka (1980) puzzle that asserts a substantial correlation between domestic investment and domestic savings in spite of the increasing capital mobility in the world. It is used the Autoregressive Distributed Lag (ARDL) bounds test approach for the period 1980-2018 on a country-by-country to identify the nature of the saving retention coefficient. Findings of the paper reveal the Feldstein–Horioka (1980) puzzle holds for China, South Africa and Turkey period examined while there is not any long-run relationship between savings and investment in Brazil, India and Indonesia. Based on the saving-retention coefficients range from 0.46 to 0.74 for the four countries which there is a cointegration between saving and investment, there is moderate to low capital mobility in these countries.

References

  • Abdul Latif, N. W., Abdullah, Z. and Md Razdi, M. A. (2015). An autoregressive distributed lag (ARDL) analysis of the nexus between savings and investment in the three Asian economies. The Journal of Developing Areas, 49(3), 323-334. DOI: 10.1353/jda.2015.0154
  • Adebola, S. S. and Dahalan, J. (2012). Capital mobility: An Application of Savings-Investment Link for Tunusia. International Journal of Economics and Financial Issues, 2(1), 1-11.
  • Ang, J. B. (2007). Are saving and investment cointegrated? The case of Malaysia (1965–2003), Applied Economics, 39:17, 2167-2174, DOI: 10.1080/00036840600722281
  • Arisoy, İ. (2013). The Analysis of Investment, Saving and Capital Fluidity in Turkey. Cumhuriyet University Journal of Economics and Administrative Sciences, 14(1), 69-80.
  • Ay, A. and Özmen, İ. (2017). Panel Data Analysis of Feldstein-Horioka Hypothesis in Emerging Economies. The Journal of Social Economic Research, 17, 1-18.
  • Behera, S. R. (2015). Saving-Investment Dynamics and Capital Mobility in the BRICS, 1970-2013. Applied Econometrics and International Development, 15(1), 5-22.
  • But, B. and Morley, B. (2016). The Feldstein-Horioka Puzzle and Capital Mobility: The Role of the Recent Financial Crisis, Economic Systems, 41(1), 139-150.
  • Chen, S-W. and Shen, C-H. (2015). Revisiting the Feldstein-Horioka Puzzle with Regime Switching: New Evidence from European Countries, Economic Modelling, 49, 260-269.
  • Coakley, J., Fuertes, A. and Spagnolo, F. (2004). Is The Feldstein-Horioka Puzzle History?. The Manchester School, 72(5), 569-590.
  • De Vita, G. and Abbott, A. (2002). Are Saving and Investment Cointegrated? An ARDL Bounds Testing Approach, Economics Letters. 77(2), 293-299.
  • Demir, C. and Cergibozan, R. (2017). The Validity of Feldstein-Horioka Hypothesis for Turkish Economy: Cointegration and Markov Regime Switching Approach. Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, 17(1), 89-104.
  • Drakos, A. A., Kouretas, G. P. and Vlamis, P. (2018). Saving, investment and capital mobility in EU member countries: a panel data analysis of the Feldstein-Horioka puzzle. Applied Economics, 50(34-35), 3798-3811. DOI: 10.1080/00036846.2018.1436150
  • Eratas, F., Basci Nur, H. and Özcalik, M. (2013). The Puzzle of Feldstein-Horioka Evaluation of Advanced Economies: A Panel Data Analysis. Çankırı Karatekin University Journal of the Faculty of Economics and Administrative Sciences, 3(2), 18-33.
  • Erdem, E., Koseoglu, A. and Yucel, A. G. (2016). Testing the validity of the Feldstein-Horioka Puzzle: New evidence from structural breaks for Turkey. Theoretical and Applied Economics, 23(2), 17-26.
  • Esen, E., Yildirim, S. and Kostakoglu, F. (2012). Testing Feldstein-Horioka Hypothesis for Turkish Economy: Application of ARDL Model. Eskişhir Osmangazi University Journal of the Faculty of Economics and Administrative Sciences, 7(1), 251-267. Feldstein, M. (1983), Domestic Saving and International Capital Movements in the Long Run and the Short Run, European Economic Review, 21(1-2), 129-151.
  • Feldstein, M. and Horioka, C. (1980). Domestic Saving and International Capital Flows. The Economic Journal, 90(358), 314-329.
  • Golub, S. (1990). International Capital Mobility: Net versus Gross Stocks and Flows, Journal of International Money and Finance, 9(4), 424-439.
  • Grullon, S. (2016). The Feldstein-Horioka Hypothesis: Co-Integration and Causality Results for Selected Countries, Quarterly Journal of Business Studies, 2(3), 134-142.
  • Kaur, H. and Sarin, V. (2019). The Saving-Investment Cointegration Across East Asian Countries: Evidence from the ARDL Bound Approach. Global Business Review, 1-9. DOI: 10.1177/0972150918816149
  • Ketenci, N. (2015). Capital mobility in Russia. Russian Journal of Economics, 1, 386-403. DOI: 10.1016/j.ruje.2016.02.003
  • Ketenci, N. (2016). The Feldstein-Horioka Puzzle and Structural Breaks: Evidence from the Largest Countries of Asia. The Journal of Applied Economic Research, 10(3), 337-354. DOI: 10.1177/0973801016645216
  • Khundrakpam, J. and Ranjan, R. (2010). Saving-investment nexus and International Capital Mobility In India: Revisiting Feldstein-Horioka Hypothesis, Indian Economic Review, 45(1), 49-66.
  • Kollias, C., Mylonidis, N., and Paleologou S.M. (2008). The Feldstein-Horioka puzzle across EU members: Evidence from the ARDL bounds approach and panel data. International Review of Economics and Finance, 17, 380-387.
  • Kόnya, L. (2015). Saving and investment rates in the BRICS countries. The Journal of International Trade & Economic Development, 24(3), 429-449. https://doi.org/10.1080/09638199.2014.920401
  • Kumar, S., Webber, D. J. and Fargher, S. (2012). Testing the validity of the Feldstein-Horioka puzzle for Australia. Applied Economics, 44(5), 599-605. DOI: 10.1080/00036846.2010.511993
  • Ma, W. and Li, H. (2016). Time-varying saving-investment relationship and the Feldstein-Horioka puzzle. Economic Modelling, 53, 166-178. http://dx.doi.org/10.1016/j.econmod.2015.11.013
  • Mercan, M. (2014). The Testing Feldstein-Horioka Hypothesis For EU-15 and Turkey: Structural Break Dynamic Panel Data Analysis Under Cross Section Dependency. Ege Academic Review, 14(2), 231-245.
  • Mosikari, T. J., Tsoku, J. T. and Xaba, D. L. (2017). Testing the Validity of Feldstein-Horioka Puzzle in BRICS Countries. International Scholarly and Scientific Research & Innovation, 11(4), 1009-1013.
  • Murphy R. (1984). Capital Mobility and the Relationship between Saving and Investment Rates in OECD Countries, Journal of International Money and Finance, 3(3), 327-342.Narayan, P. K. (2005). The Saving and Investment Nexus for China: Evidence from Cointegration Tests. Applied Economics, 37: 1979-1990. Obstfeld, M. and Rogoff, K. (2000). The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?. NBER Macroeconomics Annual, 15(1), 339-390.Pata, U. K. (2018). The Feldstein Horioka puzzle in E7 countries: Evidence from panel cointegration and asymmetric causality analysis. The Journal of International Trade & Economic Development, 27(8), 968-984. https://doi.org/10.1080/09638199.2018.1480053Pesaran, M. H., Shin, Y. and Smith, R. J. (2001). Bounds Testing Approaches To The Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326. DOI: 10.1002/jae.616Phiri, A. (2019). The Feldstein-Horioka Puzzle and The Global Financial Crisis: Evidence From South Africa Using Asymmetric Cointegration Analysis. International Economics, 72(2), 139-170.
  • Singh, T. (2019). Saving-investment correlations and the mobility of capital in the OECD countries: New evidence from cointegration breakdown tests. The International Trade Journal, 1-31. DOI: 10.1080/08853908.2019.1592727
  • Sinn, S. (1992). Saving-Investment Correlations and Capital Mobility: On Evidence from Annual Data, Economic Journal, 102(414), 1162-1170.
  • Telatar, E., Telatar, F. and Bolatoglu, N. (2007). A Regime Switching Approach to the Feldstein- Horioka Puzzle: Evidence from some European Countries, Journal of Policy Modeling, 29(3), 523-533.
  • Tesar, L. (1991). Savings, Investment and International Capital Flows, Journal of International Economics, 31(1-2), 55-78.
  • Tursoy, T. and Faisal, F. (2019). Validity of F-H hypothesis in small isolated island economy: an application of the combined cointegration approach. Asia-Pacific Journal of Accounting & Economics, 26(4), 478-488. https://doi.org/10.1080/16081625.2017.1284597
  • Yalcinkaya, Ö. and Hüseyni, İ. (2016). Saving-Investment Relationship: Evaluation of The Feldstein-Horioka Hypothesis in Terms of OECD Countries (1980-2013). Dokuz Eylül University Journal of the Faculty of Economics and Administrative Sciences, 31(1), 343-369.
  • Yildirim, D. and Koska, O. A. (2018). Puzzling out the Feldstein-Horioka Paradox for Turkey by a Time-Varying Parameter Approach. ERC Working Papers in Economics, 18/08.
  • Yildirim, D. and Orman, E. E. (2018). The Feldstein-Horioka puzzle in the presence of structural breaks: evidence from China. Journal of the Asia Pacific Economy, 23(3), 374-392. https://doi.org/10.1080/13547860.2017.1396640

Feldsteın-Horıoka Bulmacası: Gelişmekte Olan Ülkelerden Bulgular

Year 2020, Issue: 55, 141 - 158, 27.04.2020
https://doi.org/10.18070/erciyesiibd.610470

Abstract

Bu çalışma dünyadaki artan sermaye hareketliliğine rağmen yurtiçi yatırım ile yurtiçi tasarruflar arasında güçlü bir korelasyonu olduğunu ileri süren Feldstein-Horioka bulmacası kapsamında BRICS ve Kırılgan Beşli ülkelerinde tasarruf yatırım ilişkisini ve sermaye hareketliliğinin düzeyini incelemektedir. 1980-2018 dönemi için her bir ülkedeki yurtiçi tasarrufların ne kadarının yurtiçi yatırımlara dönüştüğünü gösteren tasarruf tutma katsayısını belirlemek için ARDL Sınır testi yaklaşımı kullanılmaktadır. Çalışmanın bulguları, Feldstein-Horioka bulmacasının incelenen dönem için Çin, Güney Afrika ve Türkiye’de geçerli olduğunu; buna karşın Brezilya, Hindistan ve Endonezya’da ise tasarruf ve yatırım arasında uzun dönemli bir ilişki olmadığını ortaya koymaktadır. Çalışmadan elde edilen bulgular eşbütünleşme ilişkisi gösteren dört ülke için tasarruf tutma katsayının 0.46 ile 0.74 arasında değiştiğini göstermektedir. Bu durum, söz konusu ülkelerde orta ve düşük düzeyde bir sermaye hareketliliği olduğunu ifade etmektedir.

References

  • Abdul Latif, N. W., Abdullah, Z. and Md Razdi, M. A. (2015). An autoregressive distributed lag (ARDL) analysis of the nexus between savings and investment in the three Asian economies. The Journal of Developing Areas, 49(3), 323-334. DOI: 10.1353/jda.2015.0154
  • Adebola, S. S. and Dahalan, J. (2012). Capital mobility: An Application of Savings-Investment Link for Tunusia. International Journal of Economics and Financial Issues, 2(1), 1-11.
  • Ang, J. B. (2007). Are saving and investment cointegrated? The case of Malaysia (1965–2003), Applied Economics, 39:17, 2167-2174, DOI: 10.1080/00036840600722281
  • Arisoy, İ. (2013). The Analysis of Investment, Saving and Capital Fluidity in Turkey. Cumhuriyet University Journal of Economics and Administrative Sciences, 14(1), 69-80.
  • Ay, A. and Özmen, İ. (2017). Panel Data Analysis of Feldstein-Horioka Hypothesis in Emerging Economies. The Journal of Social Economic Research, 17, 1-18.
  • Behera, S. R. (2015). Saving-Investment Dynamics and Capital Mobility in the BRICS, 1970-2013. Applied Econometrics and International Development, 15(1), 5-22.
  • But, B. and Morley, B. (2016). The Feldstein-Horioka Puzzle and Capital Mobility: The Role of the Recent Financial Crisis, Economic Systems, 41(1), 139-150.
  • Chen, S-W. and Shen, C-H. (2015). Revisiting the Feldstein-Horioka Puzzle with Regime Switching: New Evidence from European Countries, Economic Modelling, 49, 260-269.
  • Coakley, J., Fuertes, A. and Spagnolo, F. (2004). Is The Feldstein-Horioka Puzzle History?. The Manchester School, 72(5), 569-590.
  • De Vita, G. and Abbott, A. (2002). Are Saving and Investment Cointegrated? An ARDL Bounds Testing Approach, Economics Letters. 77(2), 293-299.
  • Demir, C. and Cergibozan, R. (2017). The Validity of Feldstein-Horioka Hypothesis for Turkish Economy: Cointegration and Markov Regime Switching Approach. Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, 17(1), 89-104.
  • Drakos, A. A., Kouretas, G. P. and Vlamis, P. (2018). Saving, investment and capital mobility in EU member countries: a panel data analysis of the Feldstein-Horioka puzzle. Applied Economics, 50(34-35), 3798-3811. DOI: 10.1080/00036846.2018.1436150
  • Eratas, F., Basci Nur, H. and Özcalik, M. (2013). The Puzzle of Feldstein-Horioka Evaluation of Advanced Economies: A Panel Data Analysis. Çankırı Karatekin University Journal of the Faculty of Economics and Administrative Sciences, 3(2), 18-33.
  • Erdem, E., Koseoglu, A. and Yucel, A. G. (2016). Testing the validity of the Feldstein-Horioka Puzzle: New evidence from structural breaks for Turkey. Theoretical and Applied Economics, 23(2), 17-26.
  • Esen, E., Yildirim, S. and Kostakoglu, F. (2012). Testing Feldstein-Horioka Hypothesis for Turkish Economy: Application of ARDL Model. Eskişhir Osmangazi University Journal of the Faculty of Economics and Administrative Sciences, 7(1), 251-267. Feldstein, M. (1983), Domestic Saving and International Capital Movements in the Long Run and the Short Run, European Economic Review, 21(1-2), 129-151.
  • Feldstein, M. and Horioka, C. (1980). Domestic Saving and International Capital Flows. The Economic Journal, 90(358), 314-329.
  • Golub, S. (1990). International Capital Mobility: Net versus Gross Stocks and Flows, Journal of International Money and Finance, 9(4), 424-439.
  • Grullon, S. (2016). The Feldstein-Horioka Hypothesis: Co-Integration and Causality Results for Selected Countries, Quarterly Journal of Business Studies, 2(3), 134-142.
  • Kaur, H. and Sarin, V. (2019). The Saving-Investment Cointegration Across East Asian Countries: Evidence from the ARDL Bound Approach. Global Business Review, 1-9. DOI: 10.1177/0972150918816149
  • Ketenci, N. (2015). Capital mobility in Russia. Russian Journal of Economics, 1, 386-403. DOI: 10.1016/j.ruje.2016.02.003
  • Ketenci, N. (2016). The Feldstein-Horioka Puzzle and Structural Breaks: Evidence from the Largest Countries of Asia. The Journal of Applied Economic Research, 10(3), 337-354. DOI: 10.1177/0973801016645216
  • Khundrakpam, J. and Ranjan, R. (2010). Saving-investment nexus and International Capital Mobility In India: Revisiting Feldstein-Horioka Hypothesis, Indian Economic Review, 45(1), 49-66.
  • Kollias, C., Mylonidis, N., and Paleologou S.M. (2008). The Feldstein-Horioka puzzle across EU members: Evidence from the ARDL bounds approach and panel data. International Review of Economics and Finance, 17, 380-387.
  • Kόnya, L. (2015). Saving and investment rates in the BRICS countries. The Journal of International Trade & Economic Development, 24(3), 429-449. https://doi.org/10.1080/09638199.2014.920401
  • Kumar, S., Webber, D. J. and Fargher, S. (2012). Testing the validity of the Feldstein-Horioka puzzle for Australia. Applied Economics, 44(5), 599-605. DOI: 10.1080/00036846.2010.511993
  • Ma, W. and Li, H. (2016). Time-varying saving-investment relationship and the Feldstein-Horioka puzzle. Economic Modelling, 53, 166-178. http://dx.doi.org/10.1016/j.econmod.2015.11.013
  • Mercan, M. (2014). The Testing Feldstein-Horioka Hypothesis For EU-15 and Turkey: Structural Break Dynamic Panel Data Analysis Under Cross Section Dependency. Ege Academic Review, 14(2), 231-245.
  • Mosikari, T. J., Tsoku, J. T. and Xaba, D. L. (2017). Testing the Validity of Feldstein-Horioka Puzzle in BRICS Countries. International Scholarly and Scientific Research & Innovation, 11(4), 1009-1013.
  • Murphy R. (1984). Capital Mobility and the Relationship between Saving and Investment Rates in OECD Countries, Journal of International Money and Finance, 3(3), 327-342.Narayan, P. K. (2005). The Saving and Investment Nexus for China: Evidence from Cointegration Tests. Applied Economics, 37: 1979-1990. Obstfeld, M. and Rogoff, K. (2000). The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?. NBER Macroeconomics Annual, 15(1), 339-390.Pata, U. K. (2018). The Feldstein Horioka puzzle in E7 countries: Evidence from panel cointegration and asymmetric causality analysis. The Journal of International Trade & Economic Development, 27(8), 968-984. https://doi.org/10.1080/09638199.2018.1480053Pesaran, M. H., Shin, Y. and Smith, R. J. (2001). Bounds Testing Approaches To The Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326. DOI: 10.1002/jae.616Phiri, A. (2019). The Feldstein-Horioka Puzzle and The Global Financial Crisis: Evidence From South Africa Using Asymmetric Cointegration Analysis. International Economics, 72(2), 139-170.
  • Singh, T. (2019). Saving-investment correlations and the mobility of capital in the OECD countries: New evidence from cointegration breakdown tests. The International Trade Journal, 1-31. DOI: 10.1080/08853908.2019.1592727
  • Sinn, S. (1992). Saving-Investment Correlations and Capital Mobility: On Evidence from Annual Data, Economic Journal, 102(414), 1162-1170.
  • Telatar, E., Telatar, F. and Bolatoglu, N. (2007). A Regime Switching Approach to the Feldstein- Horioka Puzzle: Evidence from some European Countries, Journal of Policy Modeling, 29(3), 523-533.
  • Tesar, L. (1991). Savings, Investment and International Capital Flows, Journal of International Economics, 31(1-2), 55-78.
  • Tursoy, T. and Faisal, F. (2019). Validity of F-H hypothesis in small isolated island economy: an application of the combined cointegration approach. Asia-Pacific Journal of Accounting & Economics, 26(4), 478-488. https://doi.org/10.1080/16081625.2017.1284597
  • Yalcinkaya, Ö. and Hüseyni, İ. (2016). Saving-Investment Relationship: Evaluation of The Feldstein-Horioka Hypothesis in Terms of OECD Countries (1980-2013). Dokuz Eylül University Journal of the Faculty of Economics and Administrative Sciences, 31(1), 343-369.
  • Yildirim, D. and Koska, O. A. (2018). Puzzling out the Feldstein-Horioka Paradox for Turkey by a Time-Varying Parameter Approach. ERC Working Papers in Economics, 18/08.
  • Yildirim, D. and Orman, E. E. (2018). The Feldstein-Horioka puzzle in the presence of structural breaks: evidence from China. Journal of the Asia Pacific Economy, 23(3), 374-392. https://doi.org/10.1080/13547860.2017.1396640
There are 37 citations in total.

Details

Primary Language English
Journal Section Makaleler
Authors

Mustafa Ozan Yıldırım 0000-0001-7982-4181

Ahmet Eren Yıldırım 0000-0002-2405-3081

Publication Date April 27, 2020
Acceptance Date January 7, 2020
Published in Issue Year 2020 Issue: 55

Cite

APA Yıldırım, M. O., & Yıldırım, A. E. (2020). The Feldstein-Horioka Puzzle: Evidence From Emerging Countries. Erciyes Üniversitesi İktisadi Ve İdari Bilimler Fakültesi Dergisi(55), 141-158. https://doi.org/10.18070/erciyesiibd.610470

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