In this paper, the authors suggest an alternative explanation of the high cross-section association between shares of saving and investment in GDP which M. Feldstein and C. Horioka (1980) interpret as evidence of low capital mobility. In OECD countries, saving and investment shares appear to be...

Recently, the large T panel literature has emphasized unobserved, time-varying heterogeneity that may stem from omitted common variables or global shocks that affect each individual unit differently. These latent common factors induce cross-section dependence and may lead to inconsistent...

The use of GLS to deal with cross-section dependence in panels is not feasible where N is large relative to T since the disturbance covariance matrix is rank deficient. Neither is it the appropriate response if the dependence results from omitted global variables or common shocks correlated with...

The Coakley, Kulasi, and Smith current-account solvency model (1996) is used to investigate saving and investment in LDCs. This model implies that saving and investment cointegrate with a unit coefficient irrespective of the degree of capital mobility. Panel and conventional unit-root tests...

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...