ERC WORKING PAPERS
Financial Development, Exchange Rate Regimes and the Feldstein-Horioka Puzzle:
Evidence from the MENA Region
This paper investigates whether the Feldstein and Horioka (1980) argument on domestic saving-investment relationship is supported by the data of the countries in the Middle East and North Africa (MENA) region when the financial development levels and exchange rate regimes are taken into account. To this end, we employ both the ARDL bounds cointegration test and panel mean group procedures. The results support the view that a successful international financial integration requires compatible levels of financial intermediation. The evidence also suggests that saving-investment cointegration is not invariant to exchange rate regimes.
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