Capital mobility and the Feldstein-Horioka Puzzle

I recently completed an empirical research paper on the Feldstein-Horioka Puzzle (“FHP”) for my class Quantitative Global Economics and wanted to share my findings. One of my main findings can be seen in the diagram above. A higher savings coefficient indicates low capital mobility (0 is perfect capital mobility and 1 is full capital immobility).

The FHP is the empirical finding by Feldstein and Horioka (1980) that international capital mobility, when measured as the cross-country correlation between savings and investment rates, is rather low, despite economic theory arguing that capital is highly mobile.

My paper carries out two analyses: the original FHP is examined using the same methodology as the original paper but using different sample periods and country groups. Secondly, I examined whether the quality of economic institutions is correlated with capital mobility when measured as the difference between national savings and investment rates, something that previous research has not analyzed.

Findings

The first analysis of this paper used the original OECD country group that Feldstein and Horioka used and found that international capital mobility has increased from the 1970s until 2009, after which capital mobility has decreased. Using the same method but 193 countries it was found that capital mobility increased until 1999, after which fell.

The second part of this paper found that the only significant determinant of capital mobility during 1995-2014 was the openness of trade regimes, and that capital mobility is not significantly correlated with time after controlling for economic institutions. It should be noted, however, that the findings were not robust when analyzed separately for the first and last ten years of the sample period.

You can read the full paper here: https://goo.gl/HsVDcm