The Feldstein-Horioka puzzle in the presence of structural breaks: evidence from China

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2018-01-01

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Yıldırım Kasap, Dilem

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This study explores the empirical validity of the Feldstein-Horioka puzzle for China in the presence of structural breaks. As such, we employ a recently proposed multiple-break cointegration test. Once the existence of the cointegration between domestic savings and investment is ensured by allowing for endogenous structural breaks, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimation procedures are implemented to obtain reliable inferences. Empirical results reveal that the relationship between Chinese domestic savings and investment has undergone some major changes. More specifically, with the introduction of managed floating exchange rate regime, a substantial reduction is observed in the almost unitary saving retention coefficient of the fixed exchange rate period. Furthermore, the correlation has experienced a slight increase since 2009, which coincides with the worldwide protectionist policies adopted in the depth of the global financial crisis.

Subject Keywords

Political Science and International Relations, Geography, Planning and Development, Development

URI

https://hdl.handle.net/11511/39683

Journal

JOURNAL OF THE ASIA PACIFIC ECONOMY

DOI

https://doi.org/10.1080/13547860.2017.1396640

Collections

Department of Economics, Article

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Citation Formats

D. Yıldırım Kasap, “The Feldstein-Horioka puzzle in the presence of structural breaks: evidence from China,” JOURNAL OF THE ASIA PACIFIC ECONOMY, pp. 374–392, 2018, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/39683.