Commenced in January 2007
Frequency: Monthly
Edition: International
Paper Count: 32727
Testing the Validity of Feldstein-Horioka Puzzle in BRICS Countries

Authors: Teboho J. Mosikari, Johannes T. Tsoku, Diteboho L. Xaba


The increase of capital mobility across emerging economies has become an interesting topic for many economic policy makers. The current study tests the validity of Feldstein–Horioka puzzle for 5 BRICS countries. The sample period of the study runs from 2001 to 2014. The study uses the following parameter estimates well known as the Fully Modified OLS (FMOLS), and Dynamic OLS (DOLS). The results of the study show that investment and savings are cointegrated in the long run. The parameters estimated using FMOLS and DOLS are 0.85 and 0.74, respectively. These results imply that policy makers within BRICS countries have to consider flexible monetary and fiscal policy instruments to influence the mobility of capital with the bloc.

Keywords: Feldstein and Horioka puzzle, saving and investment, panel models, BRICS countries.

Digital Object Identifier (DOI):

Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 946


[1] Bangake C. and Eggoh J.C (2011) “The Feldstein-Horioka puzzle in African countries: A panel cointegration analysis, Economic Modelling, 28, pp 939-947
[2] Bebczuk R. and Schmidt-Hebbel K. (2010) “Revisiting the Feldstein-Horioka puzzle: An Institutional sector view”, Económica, La Plata, Vol. 56, pp 3-38
[3] Behera S.R (2015) “Saving-Investment Dynamics and capital mobility in the BRICS, 1970-2013”, Applied Econometrics and International Development Vol. 15-1, pp 5-22
[4] Carrion-I-Silvestre J.L and Sansó A. (2006) “Testing the null of cointegration with structural breaks”. Oxford Bulletin of Economics and Statistics, 68(5) pp 623-646
[5] De Wet, A.H and Van Eyden, R. (2005) “Capital mobility in sub-Saharan Africa: A panel data approach. South African Journal of Economics 73, pp 1–22.
[6] Feldstein M. and Horioka C. (1980) “Domestic saving and international capital flow”, The Economic Journal 90, pp 314–329.
[7] Ferdousi S.A (2009) “Interest Rates and Investment Spending Relationship in Bangladesh”, Asian Affairs, Vol. 31, No. 2: pp 5-20, April-June
[8] Hadri K. (2000) “Testing for Stationarity in Heterogeneous Panel Data”, The Econometrics Journal, 3(2), pp 148-161.
[9] Ketenci N. (2015) “Capital mobility in Russia” Russian Journal of Economics 1, pp 386–403
[10] Kónya L. (2015) “Saving and investment rates in the BRICS countries”, The Journal of International Trade & Economic Development, 24:3, pp 429-449, DOI: 10.1080/09638199.2014.920401
[11] Kumar S., Sen R., and Srivastava S. (2014) “Does Economic Integration Stimulate Capital Mobility? An Analysis of Four Reginal Economic Communities in Africa, working paper series, Auckland University of Technology.
[12] Levin A., Lin C. and Chu C.J (2002) “Unit Root Tests in Panel Data: Asymptotic and Finite-sample Properties”. Journal of Econometrics 108, pp 1–24.
[13] Murthy N.R.V (2009) “The Feldstein–Horioka puzzle in Latin American and Caribbean countries: A panel cointegration analysis”, J Econ Finan, 33, pp 176–188
[14] Olivei G.P and Dreyer E.R (2000) “The Role of Savings and Investment in Balancing the Current Account: Some Empirical Evidence from the United States” New England Economic Review, July/August
[15] Pedroni P. (1999) “Critical values for cointegration tests in heterogeneous panels with multiple regressors”. Oxford Bulletin of Economics and Statistics 61, pp 653–670.
[16] Tsoukis C. and Alyousha A. (2001) “The Feldstein-Horioka Puzzle, Saving-Investment Causality and International Financial Market Integration”, Journal of Economic Integration 16(2), pp 262-277
[17] Treasury (2013) “South Africa’s position in BRICS” Quarterly Bulletin – January to March 2013
[18] www://