The Feldstein-Horioka Puzzle, Saving-Investment Causality and International Financial Market Integration

Tsoukis, Christopher; Alyousha, Ahmed

doi:2001.16.2.262

The 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, Ahmed Alyousha

University of Hull
Bahrain Centre for Studies and Research

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

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