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Journal of Economic Integration 2001 June;16(2) :262-277.
DOI: https://doi.org/10.11130/jei.2001.16.2.262
The Feldstein-Horioka Puzzle, Saving-Investment Causality and International Financial Market Integration
Christopher Tsoukis and 
Ahmed Alyousha 
University of Hull
Bahrain Centre for Studies and Research
Copyright ©2001 Journal of Economic Integration
ABSTRACT
We review the Feldstein-Horioka (1980) approach to the measurement of the degree of international capital mobility by the size of the saving-investment correlation; we conclude that it raises many problems. Instead, we employ Granger causality tests to measure capital mobility using quarterly data for a sample of 7 industrialised economies for a) the post-war period; and b) the 1980s and 1990s. For the cointegrated saving and investment ratios in the entire sample (Australia-UK), causality goes from saving to investment. For the single (German) cointe-grated pair of the 1980s and 1990s, causality runs in the opposite direction. We interpret this as evidence of increased international financial market integration post-1980.
Keywords: International Financial Market Integration | Granger Causality | Capital Mobility
 
REFERENCE
1. Gregory, A. and B. Hansen (1996), "Residual Based Tests for Cointegration in Models with Regime Shifts," Journal of Econometrics, 70; 99-126.
2. Johansen, S. (1991), 'Estimating and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, 59; 1551-80.
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