Capital mobility in Russia

Abstract

This paper investigates the level of capital mobility in Russia, testing the Feldstein–Horioka (1980) puzzle (FHP). The study examines relations between saving and investment flows in Russia in the presence of structural breaks. It employs the quarterly data for the period 1995–2013, in which all estimations are made for two periods: the full period 1995–2013 and 2000–2013, the post-Russian crisis period. The empirical analysis includes the Kejriwal and Perron (2008, 2010) structural break test to determine the presence of structural breaks in series and estimate the savings retention coefficient under the consideration of structural shifts. To facilitate comparison, the parameters of the model were estimated employing the OLS and FMOLS procedures. To test the cointegration relationships between investment and saving flows in Russia, two different cointegration tests were applied to the data. The first applied was the Maki (2012) cointegration test, which allows for an unknown number of breaks; then, in a case where only one break was detected, the Carrion-i-Silvestre and Sanso (2006) cointegration test was employed. The results of this study provide evidence of high capital mobility and reject the existence of the FHP in the post-Russian crisis period. Evidence of the cointegration presence indicates the solvency of a current account in Russia.

Keywords

• Feldstein–Horioka puzzle
• saving–investment association
• capital mobility
• cointegration
• structural breaks
• Russia