Feldstein-Horioka puzzle and international capital mobility in high income countries: a pool mean group approach

• Main Authors: Hassan, Ibrahim Bakari, Mohamed, Azali, Lee, Chin
• Format: Article
• Language: English
• Published: Kaunas University of Technology 2014
• Online Access: http://psasir.upm.edu.my/id/eprint/37660/1/Feldstein-Horioka%20puzzle%20and%20international%20capital%20mobility%20in%20high%20income%20countries%20a%20pool%20mean%20group%20approach.pdf; http://psasir.upm.edu.my/id/eprint/37660/; http://www.inzeko.ktu.lt/index.php/EE/article/view/3539

This paper reexamines the status of international capital mobility under the Feldstein-Horioka (1980) hypothesis by comparing the results from the OECD and non-OECD high income categories. Data on savings and investment ratios of 21 OECD and 17 non-OECD countries were analyzed using the dynamic heterogeneous panel estimators of Pooled Mean Group (PMG), Mean Group (MG) and Dynamic Fixed Effects (DFE). Based on the series of Hausman post-estimation test, result from the PMG is upheld. The saving-retention coefficient, showing the level of international capital mobility, reads 0.89, 0.93 and 0.16 for the high-income group, OECD category and non-OECD category respectively. This suggests lower capital mobility in high-income as a whole and OECD countries, and higher capital mobility in the non-OECD countries. The contradictory findings confirmed that the Feldstein-Horioka saving-retention coefficient is unlikely, a viable option of measuring cross-border capital mobility. Further researches therefore need to re-observe the qualification of saving-retention coefficient in explaining international capital mobility.