Another piece in the Feldstein-Horioka puzzle

Using UK quarterly data, we re-examine the nature and degree of the relationship between savings and investment by means of a newly developed bounds testing procedure to cointegration within an autoregressive distributed lag (ARDL) framework. Our finding of cointegration in all samples considered is consistent with the view that the long-run relationship between savings and investment is not exclusively dependent upon the level of financial integration. The evidence also indicates that this relationship weakens after the abolition of UK controls on capital flows in 1979, suggesting that the Feldstein-Horioka framework provides at least a partial measure of the degree of capital mobility.