Review article

TO WHAT EXTENT ARE SMALL OPEN ECONOMIES EXPOSED TO FOREIGN CAPITAL? INSIGHTS INTO THE FELDSTEIN-HORIOKA PUZZLE IN MACEDONIA

Despina Tumanoska
Nikica Mojsoska-Blazevski
Marjan Petreski

Abstract

The objective of this paper is to investigate the correlation between domestic savings and investment in Macedonia, so as to find evidence of the extent to which the country is open to capital. The theoretical framework of the analysis is the Feldstein-Horioka puzzle. We use annual data for the period 1991-2014 and the Johansen cointegration technique. We find a value of the openness coefficient of 0.685, which does not refute the existence of the puzzle and indicates limited capital mobility but not complete financial closeness in Macedonia. Moreover, the size of the coefficient indicates that Macedonia does not have enough domestic savings to finance investment, which means it is dependent on foreign capital. These results give some support to the government policy and strong focus on attracting FDIs.

Keywords

Feldstein-Horioka puzzle; domestic savings; investment; capital mobility; Macedonia

Hrčak ID:

159253

URI

https://hrcak.srce.hr/159253

Publication date:

31.5.2016.

Article data in other languages: croatian

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