Capital Mobility in Russia

Ketenci, Natalya (2014): Capital Mobility in Russia.

Abstract

This paper investigates the level of capital mobility in Russia, testing the Feldstein-Horioka puzzle proposed by Feldstein and Horioka (1980). The study examines relations between saving and investment flows in Russia in the presence of structural breaks. It employs the quarterly data for the period 1995-2013, where all estimations are made for two periods, the full period 1995-2013, and 2000-2013, the post Russian crisis period. The empirical analysis includes the Kejriwal and Perron (2008, 2010) structural break test to determine the presence of structural breaks in series and to estimate the saving-retention coefficient under the consideration of structural shifts. To allow for comparison, the parameters of the model were estimated employing the OLS and FMOLS procedures. To test the cointegration relationships between investment and saving flows of Russia, three different cointegration tests were applied to the data. First applied was the Gregory and Hansen (1996) cointegration test, which allows for one structural shift; then, in a case where two breaks were detected, the Hatemi-J (2008) cointegration test was employed. Finally, for a case where more than two breaks are detected, the Maki (2012) cointegration test, which allows for an unknown number of breaks, was applied. The results of this study provide evidence of high capital mobility and reject the existence of the FHP in the post-Russian crisis period. However, failure to reject the hypothesis of no cointegration by all employed cointegration tests denies the solvency of a current account of Russia.

• Item Type: MPRA Paper
• Language: English
• Keywords: Feldstein-Horioka puzzle, saving-investment association, capital mobility, cointegration, structural breaks, Russia.
• Subjects: F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements

References

Abalkin, A. & J. Whalley (1999). The problem of capital flight from Russia. The World Economy, 22(3), May, 1999.

Abbott, A.J., & De Vita, G. (2003). Another piece in the Feldstein–Horioka puzzle. Scottish Journal of Political Economy, 50, 69–89.

Apergis, N., & Tsoumas, C. (2009). A survey on the Feldstein Horioka puzzle: What has been done and where we stand. Research in Economics,63, 64-76.

Aristovnik, A. (2005). Twin deficits hypothesis and Horioka-Feldstein puzzle in transition economies. EconWPA. http://128.118.178.162/eps/if/papers/0510/0510020.pdf

Brockmeijer, J., Marston, D. & J. D. Ostry (2012). Liberalizing Capital Flows and Managing Outflows. Background Paper, IMF, http://www.imf.org/external/np/pp/eng/2012/031612.pdf

Bai, J., & Perron, P. (1998). Estimating and testing linear models with multiple structural changes. Econometrica, 66, 47-68.

Bose, U. (2012). The Feldstein-Horioka Puzzle: A comparative study of developed and emerging market economies. Journal of Economics and Sustainable Development, 3(10), 164-173.

Buiter, Willem H. (2003) Capital account liberalization and financial sector development in transition countries. In: Bakker, Age and Chapple, Bryan, (eds.) Capital Liberalization in Transition Countries, Lessons From the Past and for the Future. Edward Elgar, Cheltenham, UK, pp. 105-141. ISBN 9781843763451

Coakley, J., Kulasi, F., & Smith, R. (1996). Current account solvency and the Feldstein–Horioka puzzle. Economic Journal, 106, 620−627. De Vita, G., & Abbott, A. (2002). Are saving and investment cointegrated? An ARDL bounds testing approach. Economics Letters, 77, 293–299.

Elliot, G., Rothenberg, T.J., & Stock, J.H. (1996). Efficient Tests for an Autoregressive Unit Root. Econometrica, 64, 813-836.

Feldstein, M., & Horioka, C. (1980). Domestic saving and international capital flows. Economic Journal, 90, 314–329.

Fidrmuc, J. (2003). The Feldstein-Horioka puzzle and twin deficits in selected countries. Economics of Planning, 36(2), 135-152.

Fouquau, J., Hurlin, C., & Rabaud, I. (2008). The Feldstein-Horioka puzzle: A panel smooth transition regression approach. Economic Modelling, 25, 284-299.

Giannone, D. & M. Lenza. (2008). The Feldstein-Horioka Fact. Working paper, 873(February). European Central Bank.

Gregory, A.W., & Hansen, B.E. (1996). Tests for cointegration in models with trend and regime shifts. Oxford Bulletin for Economics and Statistics, 58(3), 555-560.

Hatemi-J, A. (2008). Tests for cointegration with two unknown regime shifts with an application to financial market integration. Empirical Economics, 35(3), 497-505.

Jamilov, R. (2013). Capital mobility in the Caucasus. Economic Systems, 37(2), 155-170.

Johansen, S. (1988). Statistical Analysis of Cointegrating Vectors. Journal of Economic Dynamics and Control, 12, 231-54.

Kapetanios, G. (2005). Unit-root testing against the alternative hypothesis of up to m structural breaks. Journal of Time Series Analysis, 26, 123–133.

Kejriwal.M., & Perron, P. (2008). The limit distribution of the estimates in cointegrated regression models with multiple structural changes. Journal of Econometrics, 146(1), 59-73.

Kejriwal.M., & Perron, P. (2010). Testing for multiple structural changes in cointegrated regression models. Journal of Business and Economic Statistics, 28(4), 503-522.

Ketenci, N. (2012). The Feldstein-Horioka Puzzle and structural breaks: Evidence from EU members. Economic Modelling, 29(2), 262-270.

Ketenci, N. (2013). The Feldstein-Horioka Puzzle in groupings of OECD members: a panel approach. Research in Economics, 67(1), 76-87.

Kollias, C., Mylonidis, N. & Paleologou, S.M. (2008). The Feldstein- Horioka puzzle across EU members: Evidence from the ARDL bounds approach and panel data. International Review of Economics and Finance, 17, 380-387.

Kumar, S. & B. Rao (2011). A Time-Series Approach to the Feldstein-Horioka Puzzle with Panel Data from the OECD Countries. The World Economy, 34(3), 473-485.

Liu, J., Wu, S., & Zidek, J.V. (1997). On segmented multivariate regressions. Statistica Sinica, 7, 497-525.

Maki, D. (2012). Tests for cointegration allowing for an unknown number of breaks. Economic Modelling, 29(5), 2011-2015.

Misztal, P. (2011). The Feldstein-Horioka hypothesis in countries with varied levels of economic development. Contemporary Economics, 5(2), 16-29.

Ng, S., & Perron, P. (2001). Lag selection and the construction of unit root tests with good size and power. Econometrica, 69, 1519–1554.

Obstfeld, M., & Rogoff, K. (2000). Perspectives on OECD economic integration: Implications for U.S. Current Account Adjustment. UC Berkeley: Center for International and Development Economics Research. Retrieved from: http://escholarship.org/uc/item/16z3s2s2 OECD Investment Policy Reviews: Russian Federation. Enhancing policy transparency. 2006.

Özmen, E. (2005). Macroeconomic and institutional determinants of current account deficits. Applied Economics Letters, 12(9), 557-560.

Özmen, E. (2004). Financial development, exchange rate regimes and the Feldstein-Horioka Puzzle: Evidence from the MENA region. ERC Working Papers in Economics, 04/18.

Perron, P., & Ng, S. (1996). Useful Modifications to Some Unit Root Tests with Dependent Errors and their Local Asymptotic Properties. Review of Economic Studies, 63, 435-463.

Petreska, D. & N. Mojsoska-Blazevski (2013). The Feldstein-Horioka puzzle and transition economies. Economic Annals, LVIII(197), 23-45.

Vasudeva Murthy, N. R. (2009). The Feldstein–Horioka puzzle in Latin American and Caribbean countries: a panel cointegration analysis. Journal of Economics and Finance, 33(2), 176-188.

Trunin, P. & A. Zubarev (2013). The Feldstein-Horioka puzzle: Modern aspects. Ekonomicheskaya Politika, 4, 54-73 (in Russian). Eng. version: http://ssrn.com/abstract=2353911

Zivot, E., & Andrews, D. (1992). Further evidence of great crash, the oil price shock and unit root hypothesis. Journal of Business and Economic Statistics, 10(3), 251-270.