The Feldstein-Horioka puzzle: A panel smooth transition regression approach

This paper proposes an original framework to determine the relative influence of five factors on the Feldstein and Horioka result of OECD countries with a strong saving-investment association. Based on panel threshold regression models, we establish country-specific and time-specific saving retention coefficients for 24 OECD countries over the period 1960-2000. These coefficients are assumed to change smoothly, as a function of five threshold variables, considered as the most important in the literature devoted to the Feldstein and Horioka puzzle. The results show that; degree of openness, country size and current account to GDP ratios have the greatest influence on the investment-saving relationship. (C) 2007 Elsevier B.V. All fights reserved.