Abstract

The Feldstein-Horioka puzzle has sparked debate in the body of international economics to unravel the high savings retention ratio in OECD countries amidst increasing financial integration. In this paper, we investigated the puzzle of an emerging economy using Autoregressive Distributed Lags with annual data spanning from 1983 to 2018. On the contrary, our findings show that an increase in savings rate by one percent will lead to a 0.5 percentage point increase in investment. We found evidence of a benign Feldstein-Horioka Hypothesis in the Ghanaian economy which could be explained by the miniature nature of the Ghana Economy to the international financial market. This reaffirms Ghana as a small open economy with moderate capital movement due to low financial integration.

Keywords: Feldstein-Horioka, Investment, Savings, Foreign Direct Investment, Exclusion, ARDL