The "Real" Explanation of the Feldstein-Horioka Puzzle

8 Pages Posted: 14 Mar 2016 Last revised: 3 May 2023

See all articles by Nicholas Ford

Nicholas Ford

University of Cambridge - Wolfson College

Charles Yuji Horioka

Kobe University; National Bureau of Economic Research; Asian Growth Research Institute; Osaka University

Date Written: March 2016

Abstract

This paper shows that global capital markets cannot, by themselves, achieve net transfers of financial capital between countries and that both the integration of global financial markets as well as the integration of global goods markets are needed to achieve net transfers of capital between countries. Frictions (barriers to mobility) in one or both of these markets can impede net transfers of capital between countries, produce the Feldstein and Horioka (1980) results, and prevent real interest rates from being equalized across countries. Moreover, there is empirical evidence that barriers to the mobility of goods and services are an important obstacle to international capital mobility.

Suggested Citation

Ford, Nicholas and Horioka, Charles Yuji, The "Real" Explanation of the Feldstein-Horioka Puzzle (March 2016). NBER Working Paper No. w22081, Available at SSRN: https://ssrn.com/abstract=2747201

Nicholas Ford (Contact Author)

University of Cambridge - Wolfson College ( email )

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Charles Yuji Horioka

Kobe University ( email )

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National Bureau of Economic Research ( email )

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Asian Growth Research Institute ( email )

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Osaka University ( email )

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