Capital Flows to OECD Countries Implications for Saving/Investment Puzzle
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Abstract
Most modern economic studies agree that domestic and foreign savings are the basis for economic growth and development in developed or developing countries. Achieving the economic stability of requires the sufficient financial resources to finance productive investment and contribute to raising the rate of growth.
The FH puzzle (Feldstein & Horioka, 1980: 314-329) on the role of foreign capital in addressing the savings-investment gap has occupied a wide area of debate and debate among many economic thinkers and each has their own views of who leads the development process, are they the resources that The country acquires it locally or external flows, and which is more influential in local investments, which paved the way for the emergence of many ideas and applied developments to test the validity of this dilemma by explaining the transfer of international capital between countries.
The research deals with the problem of increasing capital flows internationally across countries, because of its positive effects on the economy as it enables decision makers to allocate resources more efficiently, and to give more scope to manage risks and respond to external shocks. On the other hand, recent opinions have emerged against it, indicating that the increase in the movement of foreign capital may increase the possibility of sudden repercussions in capital flows that destabilize economies and cause financial crises, for example, the Asian crisis in 1997 and the Turkish crisis in 2002 and the global crisis 2008.
In this paper, we have reexamined the long and confusing relationship between domestic savings and investments in twelve OECD countries (Denmark, Finland, France, Germany, Greece, Italy, the Netherlands, Spain, Sweden, Switzerland, Turkey, the Kingdom) US) using double data models for the period 1980-2018 and using the Generalized Placement Systems (SYSGMM) method (Arellano & Bover, 1995: 29-51) and the results showed that they are fully consistent with subsequent studies and contrary to the FH hypothesis.
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