Recent Articles

Read more about our latest published articles.

Review’s Archive

Corresponding Author:
Andrew Phiri, Department of Economics, Faculty of Business and Economic Studies, Nelson Mandela University, Port Elizabeth, South Africa

The Feldstein-Horioka Puzzle and the Global Financial Crisis: Evidence from South Africa using Asymmetric Cointegration Analysis

Volume 72 - Issue 2, May 2019
(pp. 139-170)
JEL classification: C22, C52, F21, F41
Keywords: Investment, Savings, Feldstein-Horioka Puzzle, Threshold Cointegration, Threshold Error Correction Model, Sub-Saharan Africa, South Africa


In this study we examine the effects of the 2007-2008 global financial crisis on the Feldstein-Horioka coefficient for South Africa using momentum threshold cointegration and error correction techniques applied to quarterly national savings-investment time series collected between 1960:Q1 and 2017:Q1. Our empirical strategy consists of segregating the data into three samples; one corresponding to the full sample (1960:Q1 – 2016:Q4), another corresponding to the pre-crisis period (1960:Q1-2008:Q3) and the last corresponding to the post-crisis period (2008:Q4-2016:Q4). Our empirical results validate asymmetric cointegration effects for both the full and the pre-crisis periods while only accepting a linear cointegration relation for the post-crisis period. The saving-retention coefficient estimates produced are 0.59 (significant), 0.64 (significant), and 0.22 (insignificant) for the full, pre-crisis and post-crisis periods, respectively. These results imply that international capital mobility has increased in the post-crisis period and this may be primarily due to the effects of a redirection of private capital flows by investors to safe haven assets. Therefore policy plans of further relaxing capital controls is inadvisable considering that capital is already highly mobile.

Read the full article

Download the article in PDF format to read and print.


Abbott, A. and G. de Vita (2003), “Another Piece in the Feldstein-Horioka Puzzle”, Scottish Journal of Political Economy, 50(1), 69-89.
Adams, S., D. Sakyi, and E.E.O. Opoku (2016), “Capital inflows and Domestic Investment in Sub-Saharan Africa”, Foreign Trade Review, 51(4), 328-343.
Adedeji, O. and J. Thornton (2006), “Saving, Investment and Capital Mobility in African Countries”, Journal of African Economies, 16(3), 393-405.
Adedeji, O. and J. Thornton (2008), “International Capital Mobility: Evidence from Panel Cointegration Tests”, Economics Letters, 99(2), 349-352.
Aka, B. (2007), “The Saving-Investment Relationships: A Markov-Switching Causality Analysis of Cote d’Ivoire and Ghana”, Applied Econometrics and International Development, 7(2), 157-162.
Amirkhalkhali, S. and A. Dar (2007), “Trade Openness and the Saving-Investment Correlations”, Economic Modelling, 24(1), 120-127.
Argimon, I. and J. Roldan (1994), “Saving, Investment and International Capital Mobility in EC Countries”, European Economic Review, 38(1), 59-67.
Armstrong, H., V. Balasubramanyam and M. Salisu (1996), “Domestic Savings, Intra-National and Intra-European Union Capital Flows, 1971-1991”, European Economic Review, 40(6), 1229-1235.
Bangake, C. and J. Eggoh (2011), “The Feldstein-Horioka Puzzle in African Countries: A Panel Cointegration Analysis”, Economic Modelling, 28(3), 939-947.
Barros, C. and L. Gil-Alana (2015), “Investment and Saving in Angola and the Feldstein-Horioka Puzzle”, Applied Economics, 47(44), 4793-4800.
Bautista, C. and S. Maveyraud-Tricoire (2007), “Saving-Investment Relationship, Financial Crisis and Structural Changes in East Asian Countries”, Economie Internationale, 111, 81-99.
Behera, S. (2015), “Saving-Investment Dynamics and Capital Mobility in the BRICS, 1970-2013”, Applied Econometrics and International Development, 15(1), 5-16.
Bonga-Bonga, L. and N. Guma (2017), “The Relationship between Savings and Economic Growth at the Disaggregated Level”, Economia Internazionale/International Economics, 70(1), 1-24.
Brahmasrene, T. and K. Jiranyakul (2009), “Capital Mobility in Asia: Evidence from Bounds Testing Of Cointegration Between Savings and Investment”, Journal of the Asia Pacific Economy, 14(3), 262-269.
But, B. and B. Morley (2016), “The Feldstein-Horioka Puzzle and Capital Mobility: The Role of the Recent Financial Crisis”, Economic Systems, 41(1), 139-150.
Cadoret, I. (2001), “The Saving Investment Relation: A Panel Data Approach”, Applied Economics Letters, 8(8), 517-520.
Caner, M. and B. Hansen (2001), “Threshold Autoregression with a Unit Root”, Econometrica, 69(6), 1555-1596.
Caporale, G., E. Panopoulou and N. Pittis (2005), “The Feldstein-Horioka Puzzle Revisited: A Monte Carlo Study”, Journal of International Money and Finance, 24(7), 1143-1149.
Chakrabarti, A. (2006), “The Saving-Investment Relationship Revisited: New Evidence from Multivariate Heterogeneous Panel Cointegration Analyses”, Journal of Comparative Economics, 34(2), 402-419.
Chan, K. (1993), “Consistency and Limiting Distribution of the Least Squares Estimator of a Threshold Autoregressive Model”, Annals of Statistics, 21(1), 520-533.
Chan, K., Q. Dang, J. Lai and I. Yan (2011), “Regional Capital Mobility in China: 1978-2006”, Journal of International Money and Finance, 30(7), 1506-1515.
Chang, Y. and T. Smith (2014), “Feldstein-Horioka Puzzles”, European Economic Review, 72, 98-112.
Chen, S-W. and C-H. Shen (2015), “Revisiting the Feldstein-Horioka Puzzle with Regime Switching: New Evidence from European Countries”, Economic Modelling, 49, 260-269.
Chu, K. (2012), “The Feldstein-Horioka Puzzle and Spurious Ratio Correlation”, Journal of International Money and Finance, 31(2), 292-309.
Coakley, J. and F. Kulasi (1997), “Cointegration of Long Span Saving and Investment”, Economics Letters, 54(1), 1-6.
Coakley J., A. Fuertes and F. Spagnolo (2005), “Is the Feldstein-Horioka Puzzle History?”, The Manchester School, 72(5), 569-590.
Coiteux, M. and S. Olivier (2000), “The Saving Retention Coefficient in the Long-Run and in the Short Run: Evidence from Panel Data”, Journal of International Money and Finance, 19(4), 535-548.
Cooray, A. and D. Sinha (2007), “The Feldstein-Horioka Model Revisited for African Countries”, Applied Economics, 39(12), 1501-1510.
Corbin, A. (2001), “Country-Specific Effect in the Feldstein-Horioka Paradox: A Panel Data Analysis”, Economics Letters, 72(3), 297-302.
Cyrille, S. (2010), “Saving-Investment Correlation and Capital Mobility in Sub-Saharan African Countries: A Reappraisal through Inward and Outward Capital Flows’ Correlation”, International Journal of Economics and Finance, 2(2), 97-106.
Darkos, A., G. Kouretas, S. Stavroyiannis and L. Zarangas (2016), “Is the Feldstein-Horioka Puzzle still with us? National Saving-Investment Dynamics and International Capital Mobility: A Panel Data Analysis across EU Member Countries”, Journal of International Finance Markets, Institutions and Money, 47, 76-88.
Dekle, R. (1996), “Saving-Investment Associations and Capital mobility: On Evidence from Japanese Regional Data”, Journal of International Economics, 41(1-2), 53-72.
De Vita, G. and A. Abbott (2002), “Are Saving and Investment Cointegrated? An ARDL Bounds Testing Approach”, Economics Letters, 77(2), 293-299.
De Wet, A. and R. Van Eyden (2005), “Capital mobility in Sub-Saharan Africa: A Panel Data Approach”, South African Journal of Economics, 73(1), 22-35.
Di Iorio, F. and S. Fachin (2014), “Savings and Investment in the OECD 1970-2007: A Test of Panel Cointegration with Regime Changes”, North American Journal of Economics and Finance, 28, 59-76.
Dooley, M., J. Frankel and D. Mathieson (1987), “International Capital Mobility: What do Saving-Investment Correlations Tell us?”, IMF Staff Papers, 34(3), 503-530.
Dursun, G. and T. Abasiz (2014), “Feldstein-Horioka Puzzle in Turkey”, Dogus Universitesi Dergisi, 15(1), 45-63.
Dzhumashev, R. and A. Cooray (2017), “The Feldstein-Horioka Hypothesis Revisited”, B.E. Journal of Macroeconomics, 17(1), 1-30.
Enders, W. and C.W.J. Granger (1998), “Unit-Root Tests and Asymmetric Adjustment with an Example using the Term Structure of Interest Rates”, Journal of Business and Economic Statistics, 16(3), 304-311.
Enders, W. and P. Siklos (2001), “Cointegration and Threshold Adjustment”, Journal of Business and Economic Statistics, 19(2), 166-176.
Engle, R. and C. Granger (1987), “Co-Integration and Error Correction: Representation, Estimation, and Testing”, Econometrica, 55(2), 251-276.
Eslamloueyan, K. and M. Jafari (2010), “Capital Mobility, Openness, and Saving-Investment Relationship in Asia”, Economic Modelling, 27(5), 1246-1252.
Feldstein, M. (1983), “Domestic Saving and International Capital Movements in the Long Run and the Short Run”, European Economic Review, 21(1-2), 129-151.
Feldstein, M. and C. Horioka (1980), “Domestic Saving and International Capital Flows”, The Economic Journal, 90(358), 314-329.
Fouquau, J., C. Hurlin and I. Rabaud (2008), “The Feldstein-Horioka Puzzle: A Panel Smooth Transition Regression Approach”, Economic Modelling, 25(2), 284-299.
Georgopoulos, G. and W. Hejazi (2005), “Feldstein-Horioka Meets a Time Trend”, Economics Letters, 86(3), 353-357.
Georgopoulos, G. and W. Hejazi (2009), “The Feldstein-Horioka Puzzle Revisited: Is Home Bias much Less?”, International Review of Economics & Finance, 18(2), 341-350.
Gil-Alana, L., C. Andre, R. Gupta, T. Chang and O. Ranjbar (2016), “The Feldstein-Horioka Puzzle in South Africa”, The Journal of International Trade and Economic Development, 25(7), 978-991.
Golub, S. (1990), “International Capital Mobility: Net versus Gross Stocks and Flows”, Journal of International Money and Finance, 9(4), 424-439.
Gonzalez, A., T. Teräsvirta, D. van Dijk and Y. Yang (2005), “Panel Smooth Transition Regression Model”, Research Paper Series 165, Quantitative Finance Research Centre, University of Technology, Sydney.
Gregory, A. and B. Hansen (1996), “Residual-Based Tests for Cointegration in Models with Regime Shifts”, Journal of Econometrics, 70(1), 99-126.
Grullon, S. (2016), “The Feldstein-Horioka Hypothesis: Co-Integration and Causality Results for Selected Countries”, Quarterly Journal of Business Studies, 2(3), 134-142.
Guillaumin, C. (2009), “Financial Integration in East Asia: Evidence from Panel Unit Root and Panel Cointegration Tests”, Journal of Asian Economies, 20(3), 314-326.
Gulley, D. (1992), “Are Saving and Investment Cointegrated? Another Look at the Data”, Economics Letters, 39(1), 55-58.
Guzel, A. and Z. Ozdemir (2011), “The Feldstein-Horioka Puzzle in the presence of Structural Shifts: The Case of Japan versus the USA”, Research in International Business and Finance, 25(2), 195-202.
Hamilton, J. (1989), “A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle”, Econometrica, 57(2), 357-384.
Hansen, B. (1999), “Threshold Effects in Non-Dynamic Panels: Estimation Testing and Inference”, Journal of Econometrics, 93(2), 345-368.
Hansen, B. and B. Seo (2002), “Testing for two-regime threshold cointegration in Vector Error-Correction Models”, Journal of Econometrics, 110(2), 293-318.
Hatemi-J, A. (2008), “Tests for Cointegration with two Unknown Regime Shifts with an Application to Financial Market Integration”, Empirical Economics, 35(3), 497-505.
Herwartz, H. and F. Xu (2010), “A Functional Coefficient Model View of the Feldstein-Horioka Puzzle”, Journal of International Money and Finance, 29(1), 37-54.
Ho, T-W. (2002), “The Feldstein-Horioka Puzzle Revisited”, Journal of International Money and Finance, 21(4), 555-564.
Ho, T-W. (2003) “The Saving-Retention Coefficient and Country-size: The Feldstein-Horioka Puzzle Reconsidered”, Journal of Macroeconomics, 25(3), 387-396.
Hoffman, M. (2004), “International capital mobility in the Long-Run and the Short-Run: Can we still Learn from Saving-Investment Data?”, Journal of International Money and Finance, 23(1), 113-131.
Holmes, M. and J. Otero (2014), “Re-Examining the Feldstein-Horioka and Sachs’ Views of Capital Mobility: A Heterogeneous Panel Set-Up”, International Review of Economics and Finance, 33, 1-11.
Hussein, K. (1998), “International Capital mobility in OECD Countries: The Feldstein-Horioka ‘Puzzle’ Revisited”, Economics Letters, 59(2), 237-242.
Jansen, W. (1996), “Estimating Saving-Investment Correlations: Evidence for OECD Countries Based on an Error Correction Model”, Journal of International Money and Finance, 15(5), 749-781.
Jansen, W. (2000), “International Capital Mobility: Evidence from Panel Data”, Journal of International Money and Finance, 19(4), 507-511.
Jiang, M. (2014), “Saving-Investment Association and Regional Capital Mobility In China: A Nonparametric Panel Approach”, Pacific Economic Review, 19(2), 184-200.
Johnson, M. and D. Lamdin (2014), “Investment and Savings and the Euro Crisis: A New Look at Feldstein-Horioka”, Journal of Economics and Business, 76, 101-114.
Jošić, H. and M. Jošić (2012), “Testing the Validity of the Feldstein-Horioka Puzzle for Croatia” Economic Research, 25(3), 580-599.
Katsimi, M. and G. Zoega (2016), “European Integration and the Feldstein-Horioka Puzzle”, Oxford Bulletin of Economics and Statistics, 78(6), 834-852.
Ketenci, N. (2013), “The Feldstein-Horioka Puzzle in Groupings of OECD Members: A Panel Approach”, Research in Economics, 67(1), 76-87.
Khundrakpam, J. and R. Ranjan (2010), “Saving-investment nexus and International Capital Mobility In India: Revisiting Feldstein-Horioka Hypothesis”, Indian Economic Review, 45(1), 49-66.
Kim, S.H. (2001), “The Saving-Investment Correlation Puzzle is still a Puzzle”, Journal of International Money and Finance, 20(7), 1017-1034.
Kim, W.Y. and B.N. Jeon (2013), “Has International Capital Mobility Increased in Asia? Evidence from the Post-1997 Financial Crisis Period”, Contemporary Economic Policy, 31(2), 345-365.
Kim, S., S.H. Kim and Y. Wang (2007), “Saving, Investment and International Capital Mobility in East Asia”, Japan and the World Economy, 19(2), 279-291.
Kim, H., K-Y. Oh and C-W. Jeong (2005), “Panel Cointegration Results on International Capital Mobility in Asian Economies”, Journal of International Money and Finance, 24(1), 71-82.
Kollias, C., N. Mylonidis and S. Paleologou (2008), “The Feldstein-Horioka Puzzle across EU Members: Evidence from the ARDL Bounds Approach and Panel Data”, International Review of Economics and Finance, 17(3), 380-387.
Kónya, L. (2015), “Saving and Investment Rates in BRICS Countries”, The Journal of International Trade and Economic Development, 24(3), 429-449.
Krol, R. (1996), “International Capital Mobility: Evidence from Panel Data”, Journal of International Money and Finance, 15(3), 467-474.
Kumar, S. and B. Rao (2011), “A Time-Series Approach to the Feldstein-Horioka Puzzle with Panel Data from OECD Countries”, The World Economy, 34(3), 473-485.
Le Roux, P. and C. Moyo (2015), “Financial Liberalization and Economic Growth in the SADC”, Economic Research Southern Africa (ERSA) Working Paper 516, May.
Levy, D. (2000), “Investment-Saving Comovement and Capital Mobility: Evidence from Century Long U.S. Time Series”, Review of Economic Dynamics, 3(1), 100-136.
Li, C. (2010), “Savings, Investment, and Capital Mobility within China”, China Economic Review, 21(1) 14-23.
Miller, S. (1988), “Are Saving and Investment Cointegrated?”, Economics Letters, 27(1), 31-34.
Moreno, R. (1997), “Saving-Investment Dynamics and Capital Mobility in the US and Japan”, Journal of International Money and Finance, 16(6), 837-863.
Murphy R. (1984), “Capital Mobility and the Relationship between Saving and Investment Rates in OECD Countries”, Journal of International Money and Finance, 3(3), 327-342.
Narayan, P. (2005a), “The Relationship between Saving and Investment for Japan”, Japan and the World Economy, 17(3), 293-309.
Narayan, P. (2005b), “The Saving and Investment Nexus for China: Evidence from Cointegration Tests”, Applied Economics, 37(17), 1979-1990.
Narayan, P. and Narayan S. (2010), “Testing for Capital Mobility: New Evidence from a Panel of G7 Countries”, Research in International Business and Finance, 24(1), 15-23.
Nindi, A. and N. Odhiambo (2014), “Savings and Investment in Malawi: A Causality Test”, Investment Management and Financial Innovations, 11(4), 77-84.
Obstfeld, M. (1986), “Capital Mobility in the World Economy: Theory and Measurement”, Carnegie-Rochester Conference Series on Public Policy, 24(1), 55-103.
Obstfeld, M. and K. Rogoff (2000), “The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?”, NBER Macroeconomics Annual, 15(1), 339-390.
Odhiambo, N. (2009), “Savings and Economic Growth in South Africa: A Multivariate Causality Test”, Journal of Policy Modeling, 31(5), 708-718.
Ostry, J., A. Ghosh, K. Habermeier, M. Chamon, M. Qureshi and D. Reinhart (2010), “Capital Inflows: The Role of Controls”, IMF Staff Position Note 10/04, February.
Özmen, E. and K. Parmaksiz (2003), “Policy Regime Change and the Feldstein-Horioka Puzzle: The UK Evidence”, Journal of Policy Modeling, 25(2), 137-149.
Payne, J. and R. Kumazawa (2005) “Capital Mobility, Foreign Aid, and Openness: Further Panel Evidence from Sub-Saharan Africa”, Journal of Economics and Finance, 29(1), 122-126.
Pelagidis, T. and T. Mastroyiannis (2003), “The Saving-Investment Correlation for Greece, 1960-1997: Implications for Capital Mobility”, Journal of Policy Modeling, 25(6-7), 609-616.
Pelgrin, F. and S. Schich (2008), “International Capital Mobility: What do National Saving-Investment Dynamics Tell us?”, Journal of International Money and Finance, 27(3), 331-344.
Penati, A. and M. Dooley (1984), “Current Account Imbalances and Capital Formation in Industrial Countries, 1949-81”, IMF Staff Papers, 31(1), 1-24.
Phiri, A. (2016a), “Tourism and Economic Growth in South Africa: Evidence from Linear and Nonlinear Cointegration Frameworks”, Managing Global Transitions, 14(1), 31-53.
Phiri, A. (2016b), “Inflation Persistence and Monetary Policy in South Africa: Is the 3% to 6% Inflation Target too Persistent?”, International Journal of Sustainable Economy, 8(2), 111-124.
Raheem, I. (2017), “More Finance or Better Finance in Feldstein-Horioka Puzzle: Evidence from SSA Countries”, Global Business Review, 18(1), 132-143.
Rao, B., A. Tamazian and S. Kumar (2010), “Systems GMM Estimates of the Feldstein-Horioka Puzzle for OECD Countries and Tests for Structural Breaks”, Economic Modeling, 27(5), 1269-1273.
Sarno, L. and M. Taylor (1998), “Exchange Controls, International Capital Flows and Saving-Investment Correlations in the U.K.: An Empirical Investigation”, Review of World Economics, 134(1), 69-98.
Shibata, A. and M. Shintani (1998), “Capital Mobility in the World Economy: An Alternative Test”, Journal of International Money and Finance, 17(5), 741-756.
Singh, T. (2008), “Testing the Saving-Investment Correlations in India: An Evidence from Single-Equation and System Equations”, Economic Modelling, 25(5), 1064-1079.
Sinha, D. (2002), “Saving-Investment Relationships for Japan and other Asian Countries”, Japan and the World Economy, 14(1), 1-23.
Sinha, T. and D. Sinha (2004), “The Mother of Puzzles would not Go Away”, Economics Letters, 82(2), 259-267.
Sinn, S. (1992), “Saving-Investment Correlations and Capital Mobility: On Evidence from Annual Data”, Economic Journal, 102(414), 1162-1170.
Telatar, E., F. Telatar and N. Bolatoglu (2007), “A Regime Switching Approach to the Feldstein-Horioka Puzzle: Evidence from some European Countries”, Journal of Policy Modeling, 29(3), 523-533.
Tesar, L. (1991), “Savings, Investment and International Capital Flows”, Journal of International Economics, 31(1-2), 55-78.
Wang, M-S. (2013), “An Investigation of the Feldstein-Horioka Puzzle for the Association of Southeast Asian Nations Economies”, The Australian Economic Review”, 46(4), 424-443.
Yamori, N. (1995), “The Relationship between Domestic Savings and Investment: The Feldstein-Horioka Test using Japanese Regional Data”, Economics Letters, 48(3-4), 361-366.


Register your account

First-time users should click on “Register your account” and enter the requested information. Upon successful registration, you will receive an e-mail with instructions to verify your registration.

Submission Guidelines

Authors’ login

Use the assigned user ID and password to login. Please, do not register again. Usernames and passwords may be changed after.

Quick search by author:
Back to the top

Institute for International Economics
of the Genoa Chamber of Commerce

Istituto di Economia Internazionale
Camera di Commercio di Genova
Via Garibaldi, 4 (III piano) - 16124 Genova (Italy)