Comparative analysis of the degree of international capital mobility in Tunisia and Morocco: revised Feldstein Horioka approach

The main purpose of this paper is to assess the degree of capital mobility in Tunisia and Morocco. Using the methodology of Feldstein and Horioka (1980), we test the hypothesis of perfect capital mobility. The methodology that we have applied used time series econometric techniques, which included analyzing the stationary, co-integration and Error-Correction Model. On the other hand, we develop an Augmented Feldstein Horioka model by introducing additional variables to explain more effectively the degree of financial openness in these countries. We interpret the relationship between domestic saving and investment in the long-run as reflecting the solvency constraint. We find that saving and investment display a cointegration relationship that is consistent with the interpretation that a solvency constraint is binding for each country. The short and long run coefficients of correlation are significant and presenting a low value of estimation. We conclude that the degree of capital mobility is relatively high in Maghreb countries (Tunisia and Morocco).