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Saving, Investment, and Current Account Surplus in Developing Asia

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  • Park, Donghyun

    (Asian Development Bank)

  • Shin, Kwanho

    (Asian Development Bank)

Abstract

An integral part of global current account imbalances is the large and persistent current account surplus developing Asia has run since the 1997–1998 Asian crisis. A country’s current account surplus is, by definition, equal to its net saving. The central objective of this paper is to investigate the extent to which the saving and investment rate of Asian countries can be explained by the underlying fundamental determinants of saving and investment such as gross domestic product growth and demographic factors. Our empirical analysis yields two key findings. First, we find stronger evidence of oversaving than underinvestment in the region. Second, we find stronger evidence of overinvestment prior to the Asian crisis than underinvestment after the Asian crisis. This suggests that the key to rebalancing Asian growth toward domestic sources lies in promoting consumption rather than investment.

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Bibliographic Info

Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 158.

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Length: 35 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:ris:adbewp:0158

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Keywords: Saving; investment; current account balance; global imbalance; Asia;

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  1. Hiro Ito & Menzie Chinn, 2009. "East Asia and Global Imbalances: Saving, Investment, and Financial Development," NBER Chapters, National Bureau of Economic Research, Inc, in: Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18, pages 117-150 National Bureau of Economic Research, Inc.
  2. Higgins, Matthew, 1998. "Demography, National Savings, and International Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 343-69, May.
  3. Kim, Soyoung & Lee, Jong-Wha, 2008. "Demographic changes, saving, and current account: An analysis based on a panel VAR model," Japan and the World Economy, Elsevier, Elsevier, vol. 20(2), pages 236-256, March.
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Cited by:
  1. Sahoo, Pravakar & Dash, Ranjan Kumar, 2013. "Financial sector development and domestic savings in South Asia," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 388-397.
  2. Charles Yuji Horioka & Akiko Terada-Hagiwara, 2011. "The Determinants and Long-term Projections of Saving Rates in Developing Asia," NBER Working Papers 17581, National Bureau of Economic Research, Inc.
  3. Reda Cherif & Fuad Hasanov, 2012. "The Volatility Trap," IMF Working Papers 12/134, International Monetary Fund.
  4. Ismail, Aisha & Rashid, Kashif, 2013. "Determinants of household saving: Cointegrated evidence from Pakistan (1975–2011)," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 524-531.
  5. Juann H. Hung & Rong Qian, 2010. "Why Is China's Saving Rate So High? A Comparative Study of Cross-Country Panel Data: Working Paper 2010-07," Working Papers, Congressional Budget Office 21920, Congressional Budget Office.
  6. Guonan Ma & Robert McCauley & Lillie Lam, 2013. "The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 21(1), pages 72-84, 02.
  7. Peeters, Marga, 2012. "Asymmetric demographic pressure in South-Mediterranean versus North-Mediterranean economies and its impact on international gross capital flows," MPRA Paper 39635, University Library of Munich, Germany.
  8. Adams, Charles & Park, Donghyun, 2009. "Causes and Consequences of Global Imbalances: Perspective from Developing Asia," ADB Economics Working Paper Series, Asian Development Bank 157, Asian Development Bank.

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