9 Pages Posted: 20 Jun 2006
The purpose of this paper is to test the dependency of domestic investment on domestic saving in the Feldstein-Horioka spirit. Our innovation is to use a de nition of investment that does not include foreign direct investment. We do so since FDI should not be considered in the intertemporal budget constraint of a recipient country and therefore should not be related to domestic saving in a meaningful way. Once we adopt, as the dependent variable, pure domestic investment the result is a weakened relationship between internal saving and investment.
Keywords: Feldstein-Horioka Puzzle Foreign Direct Investments
JEL Classification: F3, F4
Suggested Citation: Suggested Citation
Zanghieri, Paolo and Rossini, Gianpaolo, A Simple Test of the Role of Foreign Direct Investments in the Feldstein-Horioka Puzzle. Applied Economics Letters, Vol. 10, No. 1, pp. 39-41, 2003. Available at SSRN: https://ssrn.com/abstract=910161