The Feldstein-Horioka relation in Turkey: An ARDL Bounds testing approach

The degree of integration to the international capital markets is a crucial issue for the economic policy implementations in developing countries. A major determinant of the degree of international capital mobility is the saving-investment association. The degree of capital mobility through the domestic saving-investment interaction is first analysed by Feldstein and Horioka (1980) in a sample of OECD countries and 1960-1974 period. The empirical results of the paper supporting the dependency of domestic investments on the domestic savings are not consistent with the high capital mobility in OECD countries. This conflict is defined in the related literature as "Feldstein-Horioka Puzzle". In this study the validity of Feldstein-Horioka puzzle for Turkey is investigated by means of World Development Indicators (WDI) annual data from 1968 to 2008 and Pesaran et al. (2001) cointegration method.