Developing Countries and the Feldstein-Horioka Puzzle

24 Pages Posted: 15 Feb 2006

See all articles by Athanasios Vamvakidis

Athanasios Vamvakidis

International Monetary Fund (IMF) - European Department

Date Written: January 1998

Abstract

The previous literature points to a high correlation between domestic rates of investment and savings among OECD countries. Some take this as evidence of limited financial integration in the industrialized world. This paper presents new empirical results, based on an extended sample of countries. The correlation coefficient in a regression of the rate of domestic investment on the rate of domestic savings is statistically insignificant most of the time and generally smaller than 0.3 for any sample other than the OECD. This finding is robust with respect to alternative time periods, subsample and estimation methods. In particular, we control for measurement error, business cycle effects, and country-specific fixed effects.

Keywords: Financial integration, emerging markets

JEL Classification: F36

Suggested Citation

Vamvakidis, Athanasios, Developing Countries and the Feldstein-Horioka Puzzle (January 1998). IMF Working Paper No. 98/2, Available at SSRN: https://ssrn.com/abstract=882211 or http://dx.doi.org/10.2139/ssrn.882211

Athanasios Vamvakidis (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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