Developing Countries and the Feldstein-Horioka Puzzle

By Romain Wacziarg, Athanasios Vamvakidis

January 1, 1998

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Romain Wacziarg, and Athanasios Vamvakidis. Developing Countries and the Feldstein-Horioka Puzzle, (USA: International Monetary Fund, 1998) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Balance of payments, Capital inflows, Domestic savings, Financial integration, Financial services, Income, Interest rate parity, National accounts, Population and demographics, Population growth

Keywords: Capital inflows, Developing country, Domestic savings, Emerging markets, Feldstein, Feldstein-Horioka result, Financial integration, Income, Interest rate parity, Investment rate, OECD country, Population growth, Retention coefficient, Saving rate, Saving share, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/002
Stock No:

WPIEA0021998
ISBN:

9781451841732
ISSN:

1018-5941

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