COMPARATIVE ANALYSIS OF FELDSTEIN-HORIOKA HYPOTHESIS IN DEVELOPED AND TRANSITION COUNTRIES

Ahmet AY

Abstract


Along with the disintegration of the USSR in the early 20th century, globalization has accelerated the process of development. One of the most important arteries of the globalization process has emerged as the liberation of capital flows. The capital stocks held by developed countries are more likely to be scattered and invested into more profitable international areas, leaving local investments at one end.

 

In this context, the capital mobility, which is accepted as a sign of the level of economic growth and development, draws attention as a very important variable in terms of countries. The study carried out by Feldstein and Horioka (1980), and the explanation of the correlation between domestic investments and savings as capital movements, is named as the Feldstein-Horioka Paradox in the economic literature. In this context, if domestic savings were added to the world savings pool and domestic investments were competing for funds in the same world savings pool, there would be no correlation between investment rates in the country and savings rates. However, transitional countries are characterized by political, economic and sociological aspects. Within the context of the given explanations, the determinations of capital mobility in terms of integration of transition countries into the global system are of interest and importance.

 

The purpose of this study is to demonstrate the relationship between local savings and local investment variables in developed and transition countries. The data used for this study were obtained from the World Bank database. In the study, panel unit root, panel cointegration and panel causality tests for the years 1990-2014 will be applied. The findings will guide policy makers in the process of integration of transition countries under the Feldstein-Horioka paradox.


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