The Feldstein–Horioka Puzzle, a Global Glut of Savings, and Omitted Variable Bias: 1970–2023
Bibliographic record
Abstract
Feldstein and Horioka in 1980 estimated (I/GDP)i = α + β(S/GDP)i where “i” is for a given country over time, “I” is domestic investment, and “S” is domestic savings. Feldstein and Horioka found βs that were insignificantly different from one and significantly different from zero. According to Feldstein and Horioka, these results conflict with an assumption of perfect capital mobility because, if capital were perfectly mobile, then β should be zero. We estimated (I/GDP)it = α + β(S/GDP)it using data from 22 countries from 1970 to 2023, where i denotes the country and t denotes the year. We found βs to be significantly less than 1 but greater than 0. We then used Reiterative Truncated Projected Least Squares, which was designed to solve the omitted variable problem (and helps a researcher visualize the effects of heteroscedasticity), to estimate a βit for every observation. We find that βit decreases for countries that export capital and increases for countries that import capital. We argue that the Feldstein-Horioka “puzzle” is based on a confusion—when the effect of both exporting and importing capital is considered, β should equal approximately one. Feldstein and Horioka focus on single countries, but when pairs of savings exporters and importers are considered, their “puzzle” disappears. However, the fact that βit is now much less than 1 and falling over time suggests that a global glut of savings is worsening.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.001 | 0.000 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.000 | 0.000 |
| Bibliometrics | 0.000 | 0.000 |
| Science and technology studies | 0.000 | 0.000 |
| Scholarly communication | 0.000 | 0.000 |
| Open science | 0.000 | 0.000 |
| Research integrity | 0.000 | 0.000 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".