An Analytical Examination of the Degree of Capital Mobility in Iran Reappraisal of Feldstein-Horioka Relationship

Our goal in this paper analysis the dynamics of national saving investment relationships between 1978 and 2017 in the economy of Iran to determine the degree of capital mobility. For this purpose, the validity of the Feldstein-Horioka hypothesis was tested by relying on the ARDL Bounds testing approach to co-integration and vector error correction model. The authors interpret the close relationship between national saving and investment in the long run as a reflection of a lack of capital mobility. These results suggest that the Feldstein-Horioka Hypothesis is applicable for the Iran economy in the period analyzed. The analysis of the time series characteristics of the current account balance shows that the current account balance does not have a unit root and the link between Iran's economy and international capital markets is not significant. We observed that trade openness, can't help explain the investment. Our findings for Iran suggest that home bias in the allocation of domestic savings significantly declines when domestic investment is financed by domestic savings alone. Furthermore, the empirical results indicate that the Feldstein-Horioka puzzle does not hold for the Iran economy.