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Theoretical and Applied Economics
No. 2 / 2016 (607), Summer

Testing the validity of the Feldstein-Horioka Puzzle: New evidence from structural breaks for Turkey

Erciyes University, Turkey
Erciyes University, Turkey
Ali Gokhan YUCEL
Erciyes University, Turkey

Abstract. The purpose of this study is to test the validity of Feldstein-Horioka Puzzle using time series data covering the period of 1960-2014 for Turkey. In order to test this relationship, the recently proposed multiple-break cointegration test of Maki (2012) was employed. After detecting the existence of a cointegration between domestic saving by allowing for endogenous structural breaks, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimation procedures are used to obtain long run coefficients. The empirical results indicate that the saving retention coefficient is equal to 0,377 and 0,406 in the DOLS and FMOLS for Turkish economy, respectively. These results imply relatively high capital mobility in Turkey.

Keywords: Feldstein-Horioka Puzzle; Savings and Investments; Cointegration; Structural Breaks; Capital Mobility.

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