The solution to the Feldstein-Horioka puzzle

Arbeitspapier

The purpose of this paper is to set out a surprisingly simple solution to the Feldstein-Horioka Puzzle or Paradox, which is that even though global financial markets appear to be integrated, levels of saving and investment are correlated across countries because financial markets cannot, by themselves, achieve net transfers of financial capital. This is because net transfers of financial capital require the integration not only of financial markets but also of goods markets and because there are substantial frictions in goods markets (e.g., transport, marketing, and distribution costs, technical standards, certification procedures, tariffs and nontariff barriers, etc.).

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ISER Discussion Paper ; No. 1016

Classification and Topics

• Classification: Wirtschaft ; Economic Integration ; International Investment; Long-term Capital Movements ; Current Account Adjustment; Short-term Capital Movements ; Financial Aspects of Economic Integration ; International Financial Markets
• Subject: Capital flows ; capital mobility ; capital transfers ; Feldstein-Horioka Paradox ; Feldstein-Horioka Puzzle ; financial market integration ; goods market integration ; interest rate parity ; international capital flows ; international capital mobility ; investment ; net capital transfers ; Niehans model ; real interest rate parity ; saving ; saving-investment correlations ; trade frictions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Horioka, Charles ; Ford, Nicholas
• Event: Veröffentlichung
• (who): Osaka University, Institute of Social and Economic Research (ISER)
• (where): Osaka
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/197690
• Last update: 10.03.2025, 11:44 AM CET