{
  "title": "Developing Countries and the Feldstein-Horioka Puzzle",
  "publication": "IMF Working Papers, January 1, 1998",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/developing-countries-and-the-feldstein-horioka-puzzle-2459",
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  "summary": "The previous literature points to a high correlation between domestic rates of investment and savings among OECD countries. Some take this as evidence of limited financial integration in the industrialized world. This paper presents new empirical results, based on an extended sample of countries.",
  "sections": [
    {
      "heading": "Summary and main findings",
      "content": "- Previous literature finds a high correlation between domestic rates of investment and savings among OECD countries; this has been interpreted as evidence of limited financial integration in the industrialized world.\n- Using an extended sample of countries, the paper finds that the correlation coefficient in a regression of the rate of domestic investment on the rate of domestic savings is statistically insignificant most of the time.\n- For any sample other than the OECD, the correlation coefficient is generally smaller than 0.3.\n- The result is robust across alternative time periods, subsamples, and estimation methods."
    },
    {
      "heading": "Methodology and robustness checks",
      "content": "- Empirical regression of domestic investment rate on domestic savings rate.\n- Controls included:\n  - Measurement error.\n  - Business cycle effects.\n  - Country-specific fixed effects.\n- Robustness assessed with respect to:\n  - Alternative time periods.\n  - Different subsamples.\n  - Alternative estimation methods."
    },
    {
      "heading": "Policy-relevant interpretation",
      "content": "- The weak or insignificant correlation between domestic savings and investment outside the OECD implies greater international capital mobility for many developing countries than suggested by the original Feldstein-Horioka observation confined to OECD countries.\n- Results bear on debates over financial integration and the degree to which domestic savings constrain domestic investment in developing and emerging markets."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subjects: Balance of payments, Capital inflows, Domestic savings, Financial integration, Financial services, Income, Interest rate parity, National accounts, Population and demographics, Population growth\n- Keywords: Capital inflows, developing country, Domestic savings, emerging markets, Feldstein, Feldstein-Horioka result, Financial integration, Income, Interest rate parity, investment rate, OECD country, Population growth, retention coefficient, saving rate, saving share, WP\n\nSource: IMF Working Papers, \"Developing Countries and the Feldstein-Horioka Puzzle\" by Romain Wacziarg and Athanasios Vamvakidis, January 1, 1998.\n\n---\n\n Content in this bundle\n\n- Developing Countries and the Feldstein-Horioka Puzzle -WP/98/2\n  - Developing Countries and the Feldstein-Horioka Puzzle -WP/98/2 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Developing Countries and the Feldstein-Horioka Puzzle -WP/98/2 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/developing-countries-and-the-feldstein-horioka-puzzle-2459"
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    "Authors: Romain Wacziarg, Athanasios Vamvakidis",
    "Published: January 1, 1998",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451841732.001",
    "Previous literature finds a high correlation between domestic rates of investment and savings among OECD countries; this has been interpreted as evidence of limited financial integration in the industrialized world.",
    "Using an extended sample of countries, the paper finds that the correlation coefficient in a regression of the rate of domestic investment on the rate of domestic savings is statistically insignificant most of the time.",
    "For any sample other than the OECD, the correlation coefficient is generally smaller than 0.3.",
    "The result is robust across alternative time periods, subsamples, and estimation methods.",
    "Empirical regression of domestic investment rate on domestic savings rate.",
    "Controls included:",
    "Robustness assessed with respect to:",
    "The weak or insignificant correlation between domestic savings and investment outside the OECD implies greater international capital mobility for many developing countries than suggested by the original Feldstein-Horioka observation confined to OECD countries.",
    "Results bear on debates over financial integration and the degree to which domestic savings constrain domestic investment in developing and emerging markets.",
    "Subjects: Balance of payments, Capital inflows, Domestic savings, Financial integration, Financial services, Income, Interest rate parity, National accounts, Population and demographics, Population growth",
    "Keywords: Capital inflows, developing country, Domestic savings, emerging markets, Feldstein, Feldstein-Horioka result, Financial integration, Income, Interest rate parity, investment rate, OECD country, Population growth, retention coefficient, saving rate, saving share, WP",
    "**Developing Countries and the Feldstein-Horioka Puzzle -WP/98/2**"
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