Re-examining the Feldstein-Horioka and Sachs' views of capital mobility: A heterogeneous panel setup

Holmes, Mark J.; Otero Cardona, Jesús Gilberto

doi:https://doi.org/10.1016/j.iref.2014.03.002

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Re-examining the Feldstein-Horioka and Sachs' views of capital mobility: A heterogeneous panel setup

https://repository.urosario.edu.co/handle/10336/22174
https://doi.org/10.1016/j.iref.2014.03.002

Autores

Holmes, Mark J.

Otero Cardona, Jesús Gilberto

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2014

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Elsevier Inc.

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Abstract

We re-examine two complementary views of international capital mobility using data for 25 OECD countries over the period 1970-2011. Estimation of the original Feldstein-Horioka and Sachs' equations provides mixed evidence of capital mobility, though we do not detect a significant bias towards finding in favour of capital immobility in using time-averaged data. However, potential bias in cross-sectional estimation motivates us to examine the data as a heterogeneous panel which allows us to control for the effects of cross-sectional dependence and endogeneity. In addressing the Feldstein-Horioka puzzle, application of the CCEMG estimator of Pesaran (2006) to the Feldstein-Horioka and Sachs' equations points towards greater (though not perfect) capital mobility than hitherto found. © 2014 Elsevier Inc.