Feldstein-Horioka puzzle

The Feldstein-Horioka puzzle refers to the unexpected observation that, across many countries, higher domestic savings tend to be strongly linked to higher investment within the country. Economists anticipated that with open capital markets, these should be more independent, allowing countries to borrow or lend internationally. Instead, the strong connection suggests that countries tend to use their own savings to fund their investments, implying limited international capital mobility. This puzzle challenges traditional views on global financial integration and raises questions about the factors influencing savings and investment behaviors.