Systems GMM estimates of the Feldstein-Horioka puzzle for the OECD countries and tests for structural breaks

Rao, B. Bhaskara and Tamazian, Artur and Kumar, Saten (2009): Systems GMM estimates of the Feldstein-Horioka puzzle for the OECD countries and tests for structural breaks.

Abstract

A systems GMM estimation method is used to estimate the Feldstein-Horioka equation from 1960-2007 with a panel of 12 OECD countries. It is found that the Feldstein-Horioka puzzle exists in a weaker form with a much reduced saving retention coefficient. The Bretton Woods agreement in particular has weakened the Feldstein-Horioka puzzle by significantly improving international capital mobility. In comparison the Maastricht agreement seems to have improved capital mobility only by a small magnitude. The Blundell and Bond approach systems GMM method and the structural break tests of Mancini-Griffoli and Pauwels are used in this paper.

• Item Type: MPRA Paper
• Language: English
• Keywords: Feldstein-Horioka puzzle, Structural breaks, Effects of Bretton Woods and Maastricht agreements on international capital mobility.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration

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