The Feldstein-Horioka puzzle and capital mobility: a review

This paper reviews how economists responded to the Feldstein–Horioka (FH) view that a high saving-investment association across OECD countries implied low capital mobility. This posed an uncomfortable puzzle since the conventional wisdom in most exchange rate and open-economy macroeconomic models was that capital mobility was high. In the face of a variety of replications, the FH result of a high cross-section association between saving and investment rates in OECD countries has remained remarkably robust. The debate over whether saving-investment comovements are informative about capital mobility is still unresolved although the sceptics appear to be in the ascendancy.