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Explaining Differences in the Domestic Savings Ratio Across Countries: A Panel Data Study

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  • Khaled A. Hussein

    ()

  • A.P. Thirlwall

    ()

Abstract

This paper seeks to analyse the major determinants of differences in the domestic savings ratio between countries using panel data for 62 countries over the period 1967-1995. A basic distinction is made between the determinants of the capacity to save and the willingness to save. The capacity to save depends primarily on the level of per capita income (but non-linearly) and the growth of income (the life cycle hypothesis), and the empirics strongly support these hypotheses. The willingness to save is assumed to depend on financial variables such as the rate of interest, the level of financial deepening and inflation. We find no support for a positive interest rate effect, but strong support for the level of financial deepening measured by the ratio of quasi-liquid liabilities to GDP. Inflation exerts a mild positive effect on saving but soon turns negative. Total saving also depends on government saving, and a surprisingly strong negative relation is found between the ratio of tax revenue to GDP and the domestic savings ratio.

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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9904.

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Date of creation: Feb 1999
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Publication status: Published in Journal of Development Studies, 1999, 36, pp.31-52
Handle: RePEc:ukc:ukcedp:9904

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: Domestic savings; income; financial variables; tax;

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References

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  1. Leff, Nathaniel H, 1969. "Dependency Rates and Savings Rates," American Economic Review, American Economic Association, vol. 59(5), pages 886-96, December.
  2. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  3. Bruno, Michael & Easterly, William, 1995. "Inflation crises and long-run growth," Policy Research Working Paper Series 1517, The World Bank.
  4. 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.
  5. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
  6. Anthony P. Thirwall, 1972. "Inflation and the Savings Ration Across Countries," Working Papers 414, Princeton University, Department of Economics, Industrial Relations Section..
  7. Friedman, Milton, 1971. "Government Revenue from Inflation," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 846-56, July-Aug..
  8. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
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Cited by:
  1. Shahbaz, Muhammad & Nawaz, Kishwar & Arouri, Mohamed & Teulon, Frédéric & Uddin, Gazi Salah, 2013. "On the validity of the Keynesian Absolute Income hypothesis in Pakistan: An ARDL bounds testing approach," Economic Modelling, Elsevier, vol. 35(C), pages 290-296.
  2. Baharumshah, Ahmad Zubaidi & Thanoon, Marwan A. & Rashid, Salim, 2003. "Saving dynamics in the Asian countries," Journal of Asian Economics, Elsevier, vol. 13(6), pages 827-845, January.
  3. Delwar Hossain, 2014. "Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in the Developing Countries: A Dynamic Heterogeneous Panel Analysis," Departmental Working Papers 2014-07, The Australian National University, Arndt-Corden Department of Economics.
  4. Ohr, Renate & Zeddies, Götz, 2010. ""Geschäftsmodell Deutschland" und außenwirtschaftliche Ungleichgewichte in der EU," Center for European, Governance and Economic Development Research Discussion Papers 110, University of Goettingen, Department of Economics.
  5. Ohr, Renate & Zeddies, Götz, 2010. ""Geschäftsmodell Deutschland" und außenwirtschaftliche Ungleichgewichte in der EU," Center for European, Governance and Economic Development Research Discussion Papers 110, University of Goettingen, Department of Economics.
  6. Prema-chandra Athukorala & Kunal Sen, 2001. "The Determinants Of Private Saving In India," ASARC Working Papers 2001-13, The Australian National University, Australia South Asia Research Centre.
  7. Arestoff, Florence & Mage-Bertomeu, Sabine & Abdelkhalek, Touhami & El Mekkaoui de Freitas, Najat, 2009. "A microeconometric analysis of households saving determinants in Morocco," Economics Papers from University Paris Dauphine 123456789/5550, Paris Dauphine University.
  8. Anja Koebrich Leon, 2013. "Religion and Economic Outcomes – Household Savings Behavior in the USA," Working Paper Series in Economics 268, University of Lüneburg, Institute of Economics.
  9. us Swaleheen, Mushfiq, 2008. "Corruption and saving in a panel of countries," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1285-1301, September.
  10. Mouawiya Al-Awad & Adam Elhiraika, 2003. "Cultural Effects and Savings: Evidence from Immigrants to the United Arab Emirates," Journal of Development Studies, Taylor & Francis Journals, vol. 39(5), pages 139-151.
  11. Floro, Maria & Seguino, Stephanie, 2002. "Gender effects on aggregate saving: A Theoretical and Empirical Analysis," MPRA Paper 6541, University Library of Munich, Germany, revised Dec 2000.
  12. Prema-Chandra Athukorala & Pang-Long Tsai, 2003. "Determinants of Household Saving in Taiwan: Growth, Demography and Public Policy," Journal of Development Studies, Taylor & Francis Journals, vol. 39(5), pages 65-88.
  13. M. Castro Campos & C. Kool & J. Muysken, 2013. "Cross-Country Private Saving Heterogeneity and Culture," De Economist, Springer, vol. 161(2), pages 101-120, June.
  14. Kevin S. Nell, 2012. "Demand-led versus supply-led growth transitions," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 34(4), pages 713-748, July.
  15. Stephanie Seguino & Maria Sagrario Floro, 2003. "Does Gender have any Effect on Aggregate Saving? An empirical analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(2), pages 147-166.

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