REVISITING FELDSTEIN-HORIOKA PUZZLE Econometric Evidences from CommonCoefficient Mean Group Model

The Feldstein-Horioka (1980) puzzle (FHP) is revisited by using Common Correlated Effect Mean Group (CCEMG) for a large group of countries over the period of 1980 to 2015. CCEMG methodology incorporates the issues of structural breaks and cross sectional dependence. Furthermore, we also investigate the role of several other macroeconomic factors, like judicial environment, governance and business environment, to improve the international capital mobility. There are two main findings of the paper. First, we confirm FHP. More exactly, there is a lack of international capital mobility among a larger group of countries. Second, this capital immobility can be declined through the improvement of globalization, judicial environment, governance and financial sector development.