NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The "Real" Explanation of the Feldstein-Horioka Puzzle

Nicholas Ford, Charles Yuji Horioka

NBER Working Paper No. 22081
Issued in March 2016
NBER Program(s):International Finance and Macroeconomics, International Trade and Investment

This paper shows that global capital markets cannot, by themselves, achieve net transfers of financial capital between countries and that both the integration of global financial markets as well as the integration of global goods markets are needed to achieve net transfers of capital between countries. Frictions (barriers to mobility) in one or both of these markets can impede net transfers of capital between countries, produce the Feldstein and Horioka (1980) results, and prevent real interest rates from being equalized across countries. Moreover, there is empirical evidence that barriers to the mobility of goods and services are an important obstacle to international capital mobility.

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Document Object Identifier (DOI): 10.3386/w22081

Published: Nicholas Ford & Charles Yuji Horioka, 2017. "The ‘real’ explanation of the Feldstein–Horioka puzzle," Applied Economics Letters, vol 24(2), pages 95-97. citation courtesy of

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