The Feldstein-Horioka puzzle in Latin American and Caribbean countries: A panel cointegration analysis

In this paper, the recently developed panel unit root and the Pedroni cointegration tests are applied to empirically examine the validity of the Feldstein-Horioka puzzle (F-H puzzle) for a heterogeneous panel of 14 Latin American and five Caribbean countries over the period, 1960-2002. The findings indicate that in these countries, the long-run solvency condition is maintained. Finally, employing the Pedroni panel group FM-OLS estimator (2000, 2001), it is found that the statistically significant estimated savings-retention coefficient for the panel is relatively small indicating that the F-H Puzzle is not valid and thus implying the prevalence of a moderate degree of capital mobility.