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

Mark J. Holmes; Jesús Otero

doi:10.1016/j.iref.2014.03.002

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

Mark J. Holmes, Jesús Otero

Faculty of Economics

Research output: Contribution to journal › Article › peer-review

11 Scopus citations

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.

Original language	English (US)
Pages (from-to)	1-11
Number of pages	11
Journal	International Review of Economics and Finance
Volume	33
DOIs	https://doi.org/10.1016/j.iref.2014.03.002
State	Published - Sep 2014

All Science Journal Classification (ASJC) codes

Finance
Economics and Econometrics

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title = "Re-examining the Feldstein-Horioka and Sachs' views of capital mobility: A heterogeneous panel setup",

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.",

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AB - 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.

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

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