Post-Socialist Capital Market: Why Not the Feldstein-Horioka Puzzle?
9 Pages Posted: 13 Apr 2014
Date Written: January 12, 2014
The Feldstein-Horioka puzzle is often referred to as evidence of poor capital mobility between countries. One might expect that integrated economies (such as in the EU) would lead to the end of this puzzle. On the contrary, disintegration would be likely to produce this puzzle. The Comecon’s members, especially former Soviet republics, have suffered such a destruction of common economic space last several decades. However, we find that the Feldstein-Horioka puzzle is not clearly observable among these countries.
We try to find an explanation in the sense of ties between economic actors. The specific circumstances of the post-socialist transformation made it more or less difficult to run long-time investment projects. Therefore, investments in these countries were not constrained in this way and could “choose” their direction relatively freely.
It brings us to the conclusion that the Feldstein-Horioka puzzle is a characteristic of economic actors and their environment to a greater extent than capital market frictions per se.
Keywords: The Feldstein-Horioka puzzle, capital market, post-socialist transformation
JEL Classification: E2
Suggested Citation: Suggested Citation