Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197690 
Year of Publication: 
2017
Series/Report no.: 
ISER Discussion Paper No. 1016
Publisher: 
Osaka University, Institute of Social and Economic Research (ISER), Osaka
Abstract: 
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.).
Subjects: 
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
JEL: 
F15
F21
F32
F36
G15
Document Type: 
Working Paper

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