Mobility of capital and external sustainability of the Portuguese economy

Abstract

The Feldstein‐Horioka thesis was considered one of the greatest puzzles in economics. Proposed to be a measure of international capital mobility, has known a process of immunisation to be conformed to empirical evidence and respect econometric knowledge. We apply to the Portuguese economy the proposed tests not only to know the degree of capital mobility but also to know if this economy is external sustainable. The original ideas in the paper are our interpretation of the theoretical evolution of the F‐H thesis, the importance of analysing the random nature of the model of one equation and not only the retention coefficient and the macro view given by an appropriate VAR model with investment and saving. We conclude by the confirmation of important capital mobility in the Portuguese economy and the external unsustainability of this economy