A Re-Evaluation of the Feldstein-Horioka Puzzle in the Eurozone
23 Pages Posted: 26 Nov 2018
Date Written: September 11, 2018
In this paper we re-evaluate the capital immobility hypothesis of Feldstein and Horioka (1980) for the case of the European Union and the Eurozone, based on long-run regressions. We employ the Long Run Derivative proposed by Fischer and Seater (1993) in order to examine capital mobility as a long-run phenomenon. In order to enhance the robustness of our results we also perform panel causality tests on our data as it is a common approach in this setting. Our empirical findings provide no evidence in favor of the capital immobility hypothesis. In fact, we reject capital immobility even before the creation of the European Union, the introduction of the Eurozone or the 2008 global financial crisis.
Keywords: Feldstein-Horioka Puzzle, Investment, Savings, International Economics
JEL Classification: F20, F30
Suggested Citation: Suggested Citation