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Capital mobility in Latin American and Caribbean countries: alternative view on the “Feldstein-Horioka” coefficient

Valeryia Yersh (Department of Econometrics, Lazarski University, Warszawa, Poland)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 9 August 2022

Issue publication date: 19 March 2024

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Abstract

Purpose

The purpose of this study is to examine two issues, namely the degree of current account deficit (CAD) sustainability and the degree of capital mobility.

Design/methodology/approach

The sample for this study comprises 24 Latin American and Caribbean countries, including three regional agreements: Andean Community, MERCOSUR (Mercado Común del Sur), and SICA (Central American Integration System). This study employs the dynamic common correlated effects mean group (DCCEMG) estimator in a panel data set to investigate the long-run relationship between savings and investment along with short-run dynamics.

Findings

The findings indicate that CAD is weakly sustainable in the Latin American and Caribbean region, MERCOSUR, and SICA, while CAD is strongly unsustainable in the Andean Community. The sub-period analysis reveals that CAD has been adversely affected by the 2008 crisis. However, in the post-crisis period, CAD has been slowly decreasing in the Latin American and Caribbean region and Andean Community, whereas CAD has continued increasing in MERCOSUR and SICA. Further, the estimates of error-correction terms and short-run coefficients indicate that the Andean Community and MERCOSUR observe a higher degree of long-run and short-run capital mobility than SICA.

Practical implications

The results carry fundamental implications for policy-making processes aimed at maintaining sustainable CADs.

Originality/value

This study gives an alternative interpretation of the “Feldstein-Horioka” coefficient in terms of CAD sustainability and analyses the saving–investment relationship in light of Chudik and Pesaran (2015).

Keywords

Citation

Yersh, V. (2024), "Capital mobility in Latin American and Caribbean countries: alternative view on the “Feldstein-Horioka” coefficient", International Journal of Emerging Markets, Vol. 19 No. 4, pp. 989-1006. https://doi.org/10.1108/IJOEM-04-2021-0533

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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