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Capital flows and saving in Latin America and Asia: a reinterpretation

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  • Reinhart, Carmen M.
  • Talvi, Ernesto

Abstract

Both theory and the empirical evidence for a broad range of countries have identified a negative relationship between domestic and foreign saving. Still, based on the experience of the 1990s, a popular view has emerged that domestic and foreign saving are positively related in Asia and negatively related in Latin America. We argue that this popular discussion does not discriminate between trends in domestic saving (which are very different in the two regions) and the cyclical component of saving, which is linked to capital flows. We show that, when trend and cyclical components of domestic saving and capital flows are properly taken into account, the two regions do not differ in the short-run response of domestic saving to capital inflows. We conclude that the main differences pertain to the long-run behavior of saving rates, which are driven by trends in demographic factors, per capita GDP, and other factors that have little to do with fluctuations in capital flows.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 57 (1998)
Issue (Month): 1 (October)
Pages: 45-66

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Handle: RePEc:eee:deveco:v:57:y:1998:i:1:p:45-66

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Web page: http://www.elsevier.com/locate/devec

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  1. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  2. Ghosh, Atish R & Ostry, Jonathan D, 1995. "The Current Account in Developing Countries: A Perspective from the Consumption-Smoothing Approach," World Bank Economic Review, World Bank Group, vol. 9(2), pages 305-33, May.
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  6. Masao Ogaki & Jonathan David Ostry & Carmen Reinhart, 1995. "Saving Behavior in Low and Middle-Income Developing Countries," IMF Working Papers 95/3, International Monetary Fund.
  7. Kokila Doshi, 1994. "Determinants Of The Saving Rate: An International Comparison," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 37-45, 01.
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  12. Reinhart, C.M. & Dunaway, S., 1996. "Dealing with Capital Inflows. Are There Any Lessons?," Research Paper 28, World Institute for Development Economics Research.
  13. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
  14. Nicola Rossi, 1989. "Dependency Rates and Private Savings Behavior in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 166-181, March.
  15. Carroll, Christopher D & Rhee, Byung-Kun & Rhee, Changyong, 1994. "Are There Cultural Effects on Saving? Some Cross-Sectional Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 685-99, August.
  16. Reinhart, Carmen & Leiderman, Leonardo, 1994. "Capital inflows to Latin America," MPRA Paper 13406, University Library of Munich, Germany.
  17. Giovannini, Alberto, 1985. "Saving and the real interest rate in LDCs," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 197-217, August.
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  20. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
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  22. Hamid Faruqee & Aasim M. Husain, 1995. "Saving Trends in Southeast Asia," IMF Working Papers 95/39, International Monetary Fund.
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