Abstract
Using Saving-Investment relationship as indirect evidence of global capital mobility, this paper empirically examines the capital mobility hypothesis using new data for forty developing countries. The paper utilizes annual data over 1960-2013 period, the longest time period of 54 years for as many developing countries ever used with a panel sample size of 2,160 (40 x 54) annual observations, the longest time periods and largest cross-sections ever used previously. For this study, panel regression analysis was used to estimate the relationship and then use the relationship to test some hypothesis regarding the capital mobility. The study finds evidence of partial capital mobility among the sample developing countries, and the degree of capital mobility was found to be stronger than that originally found by Feldstein and Horioka
Highlights
The world has been witnessing increased globalization over the years, since the fall of the Berlin Wall and the collapse of the Iron Curtain in 1989
In a world with high degree of globalization and global integration, it is expected that capital mobility among nations would be strong
We utilized the original Feldstein-Horioka (1980) framework to examine the degree of capital mobility among nations along with some hypothesis tests based on coefficient restrictions as developed and discussed earlier in the paper
Summary
The world has been witnessing increased globalization over the years, since the fall of the Berlin Wall and the collapse of the Iron Curtain in 1989. It is expected that capital mobility may be stronger among developed countries than developing countries to the extent that the financial markets in the former are likely to be open to capital mobility than the latter This is, perhaps, due at least partly to higher level capital controls and public interventions in various forms to safeguard national economies from sudden and unexpected external negative financial shocks. In light of this expectation, this study empirically examines the degree of global capital mobility across a group of 40 developing countries spanning the period from 1960 to 2013 for a sample period of 54 years, the longest time period ever used in previous studies.
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