The Feldstein-Horioka Paradox – Evidence for Colombia during 1925-2011
DOI:
https://doi.org/10.17230/ecos.2015.40.1Keywords:
Feldstein – Horioka puzzle, cointegration, Error Correction Model, imperfect capital mobility, ColombiaAbstract
This paper examines the relationship between national investment and saving in Colombia during the period 1925-2011. Consistent with Cardenas and Escobar (1998), an Error Correction Model is used to examine short and long run effects. The results provide evidence that investment and saving are co-integrated during the study period. The results for the co-integration vector, with and without structural breaks, indicate that capital mobility was low, which is consistent with the Feldstein – Horioka [1980] paradox. The results imply that increases in domestic saving rates reduce the mobility of financial capital in Colombia.Downloads
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