Savings And Economic Disasters: Global Evidence

In recent literature, economic disasters have shown promising potential to fill some important gaps in empirical research. The term economic disaster is used in the literature to identify particularly large economic crises, and Barro and Ursúa (2008, 2012) define it as a cumulative decline in output or consumption over one or more years of at least 10 percent. The contribution of economic disasters has been recognized in a number of phenomena ranging from those of finance to those of traditional macroeconomic analysis related to investment and output. Using the recently updated and expanded Ćorić (2021) database on economic disasters, this paper re-examines the impact of economic disasters on saving. Early studies suggest that theoretically negative effects are to be expected. However, more recent empirical research by Aizenman and Noy (2015) shows that economic disasters increase the savings rate. This result implies that the predominant effect of uncertainty related to economic disasters is to increase precautionary saving, which is in contrast to previous findings in the literature. The present study therefore aims to investigate this discrepancy in the results by providing new empirical evidence based on the new database on economic disasters. This database covers a much larger number of countries and thus provides new insights into the relationship between economic disasters and saving from a global perspective. Using a sample of 169 countries, both developed and less developed, since 1980, this study finds that economic disasters have a positive effect on saving and that the effect is statistically significant.