| INTRODUCTION
|
. | The Feldstein-Horioka
"puzzle" comes from a paper published by Martin Feldstein and Charles Horioka
in 1980. This paper was looking at a problem related to understanding a
complex relationship between foreign direct investment, savings, and capital
mobility.
In simple simple terms, big huge companies move around the world to operate where they can make more profits "Feldstein and Horioka (1980)
have proposed to measure capital mobility using the degree of correlation
between saving and investment rates. The theoretical rationale for the
Feldstein-Horioka hypothesis is that perfect capital mobility drives a
wedge between saving and investment, as savers would face the same (world)
interest rate. If, on the other hand, capital mobility is low, a wedge
will be driven between the domestic and foreign costs of borrowing. Thus,
under high capital mobility saving and investment will be weakly correlated
and vice versa. "
|
| Feldstein/Horioka
by Georgopoulosa and
|
. | In 2007, Prof.
George Georgopoulosa and Prof. Walid Hejazi had an article discussing Feldstein/Horioka,
which was published in the International Review of Economics & Finance Georgopoulosa teaches economics
at York University
|
this is the abstract of that 2007 article
"The large correlation between
domestic savings and investment is well documented and is known as the
Feldstein–Horioka puzzle. We demonstrate that estimates of the FH coefficients
using the standard framework are biased upward in the presence of highly
positively correlated inward and outward capital flows. Using data for
the 14 OECD countries, the analysis shows that the significant home bias
documented by FH and others is also consistent with much higher levels
of capital mobility when capital outflows and inflows are highly positively
correlated. Taking account for these correlations reduces the estimated
home bias somewhere between 45% and 90%."
|
|
CONTACT I MAIN PAGE I NEWS GALLERY I E-BIZ SHORTCUTS I INT'L BIZ SHORTCUTS I MKTG&BUSINESS SHORTCUTS I TEACHING SCHEDULE |
| . | |
| MISTAKES ITEXTS USED I IMAGES I RANK IDISCLAIMER I STUDENT CONTRIBUTORS I FORMER STUDENTS I | |
| . |