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Structural change, savings and current account balance

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  • Sun, Yi
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    Abstract

    Private savings have experienced remarkable divergences across countries in recent years. In this paper we use a new factor, economic structural changes, to explain the differences of private savings in developing countries and its impacts on current account balance. We point out that growth related structural changes can be decomposed into productivity changes and job reallocations, which will affect private savings differently through wage effect and labor reallocation effect. Wage variation resulting from productivity growth will increase private savings, while labor reallocation moving from low income to high income sectors will reduce savings. Using sector level data, we find strong empirical evidence that structural change patterns have a significant impact on private savings and current account balance. This result provides another way to understand the recent "savings glut" in East Asian countries and also has some implications for the large current account imbalance issue.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 20 (2011)
    Issue (Month): 1 (January)
    Pages: 82-94

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    Handle: RePEc:eee:reveco:v:20:y:2011:i:1:p:82-94

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    Web page: http://www.elsevier.com/locate/inca/620165

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    Keywords: Economic growth Structural change Saving behavior Current account Global imbalance;

    References

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    1. Masson, Paul R & Bayoumi, Tamim & Samiei, Hossein, 1998. "International Evidence on the Determinants of Private Saving," World Bank Economic Review, World Bank Group, vol. 12(3), pages 483-501, September.
    2. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
    3. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January.
    4. Jeannine Bailliu & Helmut Reisen, 1998. "Do funded pensions contribute to higher aggregate savings? A cross-country analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(4), pages 692-711, December.
    5. Bewley, Truman F., 1980. "The permanent income hypothesis and long-run economic stability," Journal of Economic Theory, Elsevier, vol. 22(3), pages 377-394, June.
    6. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
    7. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "Saving in Developing Countries: An Overview," World Bank Economic Review, World Bank Group, vol. 14(3), pages 393-414, September.
    8. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
    9. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," NBER Working Papers 12167, National Bureau of Economic Research, Inc.
    10. Gruber, Joseph W. & Kamin, Steven B., 2007. "Explaining the global pattern of current account imbalances," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 500-522, June.
    11. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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    Cited by:
    1. Michał Brzozowski & Sadananda Prusty, 2013. "Impact of GDP volatility on current account balances," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 5(3), pages 239-252.

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