The Feldstein-Horioka puzzle and capital mobility: the role of the recent crisis

Boris But, Bruce Morley

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The Feldstein-Horioka puzzle has long been debated as it relates to the important topics of capital mobility and how to determine levels of investment. Adopting a recursive approach and panel techniques, this paper explores the impacts of the recent financial crisis on the validity of the puzzle. The OECD’s saving-investment correlation dropped to a record low just before the 2007/08 crisis began, reflecting the perceived ‘end’ of the FH puzzle in some studies. But since the onset of the crisis, our results indicate that this correlation has increased, suggesting the puzzle’s return. The puzzle for net capital-importing and net capital-exporting countries differs, with the relationship being more significant for the exporters compared to the importers, reflecting the asymmetry in terms of the degree of any shocks across countries.
Original languageEnglish
Pages (from-to)139-150
JournalEconomic Systems
Issue number1
Early online date23 Dec 2016
Publication statusPublished - 1 Mar 2017


  • Feldstein-Horioka puzzle; capital mobility; financial crisis.


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