EXPLORING INDIA’S ECONOMIC SCENARIO THROUGH THE LENS OF FELDSTEIN HORIOKA PUZZLE

Abstract

The Feldstein Horioka Puzzle has been a subject of extensive research, with various studies offering conflicting perspectives on its validity. The puzzle focuses on the relationship between saving and investment and whether the relationship holds true at the national level. The puzzle pertains to the persistent correlation between savings and investment, implying that countries with higher savings rates should also exhibit higher investment rates, in opposition to what conventional economic models predict. In the case of India, the Feldstein Horioka Puzzle has yielded diverse conclusions. Annual data from 1970 to 2021 has been used in the study to examine the validity of the Feldstein Horioka Puzzle in India. To confirm the long-term association between saving and investment, it is crucial to consider the cointegration test results. The results of the study KEYWORDS: Feldstein-Horioka Puzzle, saving, investment, fixed exchange rate, cointegration