Baxter and Crucini [Am. Economic Rev. 83 (1993) 416] propose a country-size argument to explain the Feldstein-Horioka puzzle. This paper augments the empirical literature by examining the threshold effect of country-size, measured by relative GNP share, on the magnitude of saving-retention coefficient. Evidence from a panel of 23 OECD countries indicates that the saving-retention coefficient increase as the relative GNP share becomes larger, which substantially supports the country-size argument.
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