Re-examining the Feldstein-Horioka and Sachs' views of capital mobility: A heterogeneous panel setup Academic Article

journal

  • International Review of Economics and Finance

abstract

  • We re-examine two complementary views of international capital mobility using data for 25 OECD countries over the period 1970-2011. Estimation of the original Feldstein-Horioka and Sachs' equations provides mixed evidence of capital mobility, though we do not detect a significant bias towards finding in favour of capital immobility in using time-averaged data. However, potential bias in cross-sectional estimation motivates us to examine the data as a heterogeneous panel which allows us to control for the effects of cross-sectional dependence and endogeneity. In addressing the Feldstein-Horioka puzzle, application of the CCEMG estimator of Pesaran (2006) to the Feldstein-Horioka and Sachs' equations points towards greater (though not perfect) capital mobility than hitherto found. © 2014 Elsevier Inc.

publication date

  • 2014/1/1

keywords

  • Capital mobility
  • Cross-sectional dependence
  • Endogeneity
  • Estimator
  • Feldstein-Horioka
  • Feldstein-Horioka puzzle
  • Heterogeneous panels
  • International capital mobility
  • OECD countries

International Standard Serial Number (ISSN)

  • 1059-0560

number of pages

  • 11

start page

  • 1

end page

  • 11