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Savings and the Terms of Trade Under Borrowing Constraints

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  • Pierre-Richard Agenor
  • Joshua Aizenman

Abstract

This paper examines the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. The first part uses a simple three-period model to show that, if households expect to face binding borrowing constraints in bad states of nature, savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of trade in contrast to what conventional consumption-smoothing models would predict. The second part tests for the existence of asymmetric effects of terms-of-trade disturbances using an econometric model that controls for various standard determinants of private savings. The results, based on panel data for non-oil commodity exporters of sub-Saharan Africa for the period 1980-96, indicate that increases in the permanent component of the terms of trade (measured using three alternative filtering techniques) tend indeed be associated with higher rates of private savings.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7743.

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Date of creation: Jun 2000
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Publication status: published as Agenor, Pierre-Richard & Aizenman, Joshua, 2004. "Savings and the terms of trade under borrowing constraints," Journal of International Economics, Elsevier, vol. 63(2), pages 321-340, July.
Handle: RePEc:nbr:nberwo:7743

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Cited by:
  1. Abdur R Chowdhury, 2004. "Private Savings in Transition Economies: Are there Terms of Trade Shocks?," Comparative Economic Studies, Palgrave Macmillan, vol. 46(4), pages 487-514, December.
  2. Piotr Misztal, 2010. "The Harberger-Laursen-Metzler Effect. Theory and Practice in Poland," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 13(38), pages 129-146, December.
  3. Montiel, Peter J. & Serven, Luis, 2008. "Real exchange rates, saving and growth : is there a link ?," Policy Research Working Paper Series 4636, The World Bank.
  4. Smith, Constance, 2011. "External Balance Adjustment: An Intra-National and International Comparison," Working Papers 2011-13, University of Alberta, Department of Economics.
  5. Salim B. Furth, 2010. "Terms of Trade Volatility and Precautionary Savings in Developing Economies," DEGIT Conference Papers c015_013, DEGIT, Dynamics, Economic Growth, and International Trade.
  6. Abdur R. Chowdhury, 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," Macroeconomics 0303006, EconWPA.
  7. World Bank, 2011. "Turkey - Country Economic Memorandum (CEM) : Sustaining High Growth - The Role of Domestic savings : Synthesis Report," World Bank Other Operational Studies 12264, The World Bank.
  8. Matthieu Bussiere & Georgios Chortareas & Rebecca Driver, 2003. "Current Accounts, Net Foreign Assets and the Implications of Cyclical Factors," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 269-286, Spring.
  9. Tayyaba Idrees & Saira Tufail, 2012. "The Harberger-Laursen-Metzler Effect: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 17(2), pages 87-110, July-Dec.
  10. Chowdhury, Abdur R., 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," BOFIT Discussion Papers 3/2003, Bank of Finland, Institute for Economies in Transition.

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