Capital Mobility in V4 Economies

Capital is one of the most important productive inputs. Under globalization, it is characterized by a certain mobility degree, which can be a significant factor that influences economic growth. In general, a more open capital account implies a higher productive performance than economies with restricted capital mobility. However, this relation is not straightforward, and there is empirical evidence that for weaker economies a high degree of capital mobility is undesirable. To measure the degree of capital mobility, the Feldstein-Horioka hypothesis is usually applied: Under perfect capital mobility, domestic savings and investment rates should be uncorrelated. In econometric models, a possible long-run relation between savings and investment is studied by the help of the concept of cointegration. Recently, the importance of including foreign direct investment into the cointegration equation has been documented. The relevant econometric analysis of capital mobility in V4 economies is presented treating the countries as a panel. The four countries sharing a similar economic history have a high demand for investment from abroad but the domestic capital only rarely is exported. This might be why in aggregation the results tend to be insignificant. In the long-run, a low capital mobility is stated.