ORIGINAL PAPER A reassessment of the Feldstein-Horioka hypothesis of perfect capital mobility: evidence from historical data Dimitris K. Christopoulos Published online: 6 June 2007 Ó Springer Science+Business Media B.V. 2007 Abstract This short paper explores the relationship between investment and saving rates in a sample of 13 OECD countries over the period 1885–1992. To this end, I employ panel cointegration tests based on the maximum likelihood approach developed by Johansen (J Economic Dynamics Control 12:231–254, 1988) instead of conventional panel cointegration residual based tests, in order to draw sharper conclusions. Using estimation techniques appropriate for heterogeneous panels I find a low degree of capital mobility for the sub-periods 1921–1992 and 1950–1992. The findings overwhelmingly support the hypothesis of perfect capital mobility in the short run. Keywords International capital mobility  Panel cointegration  Domestic savings JEL Classification C23  F30  F32 1 Introduction According to the Feldstein-Horioka (1980) proposition, if investments and savings within each country are highly positively correlated this can be considered as evidence against high international capital mobility. This is so because with high capital mobility, capital flows among countries equalize the yield of investors, hence it is not necessary for domestic savings and investments to be correlated. Several studies have investigated the relationship between domestic investment and saving empirically, arriving at conflicting results. On the one hand, Feldstein- Horioka (1980), Feldstein (1983), Bayoumi (1990), Tesar (1991), and Coiteux and D. K. Christopoulos (&) Department of Economic and Regional Development, Panteion University, Leof. Syngrou 136, Athens 17671, Greece e-mail: christod@panteion.gr 123 Empirica (2007) 34:273–280 DOI 10.1007/s10663-007-9044-1