The Feldstein-Horioka puzzle and capital mobility: a review

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 models was that capital mobility was high. In the face of a variety of replications, the FH result of a high cross‐section association between saving and investment rates in OECD countries has remained remarkably robust. The debate over whether saving‐investment comovements are informative about capital mobility is still unresolved although the sceptics appear to be in the ascendancy