European Integration and the Feldstein-Horioka Puzzle

17 Pages Posted: 4 Feb 2015

See all articles by Margarita Katsimi

Margarita Katsimi

Athens University of Economics and Business - Department of International and European Economic Studies; CESifo (Center for Economic Studies and Ifo Institute)

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

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Date Written: January 30, 2015

Abstract

We estimate the Feldstein-Horioka equation for the period 1960-2012 and find structural breaks that coincide with the introduction of the European single market in 1993, the introduction of the euro in 1999 and the financial crisis in 2008. The results suggest that the correlation between investment and savings depends on institutions, exchange rate risk and credit risk. Furthermore, we find that the pattern of capital flows within the euro zone reflect differences in output per capita, the rate of growth of output per capita and budget balances.

Keywords: Feldstein-Horioka puzzle, European integration

JEL Classification: E200

Suggested Citation

Katsimi, Margarita and Zoega, Gylfi, European Integration and the Feldstein-Horioka Puzzle (January 30, 2015). CESifo Working Paper Series No. 5180, Available at SSRN: https://ssrn.com/abstract=2559752

Margarita Katsimi

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

76, Patision Avenue
GR-10434 Athens
Greece

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Gylfi Zoega (Contact Author)

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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