Data Based Economics - Accounting and Finance Assignment Help

Assignment Task

In a famous paper, Domestic saving and international capital flows (Economic Journal, 1980), Martin Feldstein and Charles Horioka, exposed the following puzzle: - if international flows of capital were frictionless, capital allocations should be determined by productivity differentials - as a result, fluctuations in investment in a given country should be primarly explained by capital flows - yet, the data shows a strong correlation between domestic saving and domestic investment

Your goal is to confirm the last point of the Feldstein-Horioka analysis by estimating the following regression across OECD countries:1

where Iit, Sit and Yit are gross investement, saving and total production in country i at date t and it is a gaussian random error.2 In this regression a low coefficient of β means a high mobility of capital (local
investment is determined by productivity not local savings), while β close to one corresponds to high capital mobility. We would like to estimate this relationship for as many OECD countries as possible from 1970 to 2010 and to check the results on subperiods 1970-1979, 1980-1989, 1990-1999 and 2000, 2009.

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