IDEAS home Printed from https://ideas.repec.org/p/bof/bofitp/2003_003.html
   My bibliography  Save this paper

Do asymmetric terms of trade shocks affect private savings in a transition economy?

Author

Listed:
  • Chowdhury, Abdur R.

Abstract

This paper examines whether terms of trade shocks have an asymmetric effect on private savings in transition economies.A simple three-period framework is developed to show that, in the presence of binding credit constraints in bad states of nature, savings rates can be sensitive to favorable movements in the permanent component of the terms of trade.This result contrasts with the prediction of the conventional consumption-smoothing model.Empirical analysis with a dynamic panel model further confirms that while favorable movements in the permanent component of the terms of trade have an asymmetric effect on private savings, the magnitude of the effect is relatively small.The results are robust for alternative estimators, determinants, and country groupings.JEL classification: F10, E21, P33 Key words: transition, private savings, terms of trade

Suggested Citation

  • 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.
  • Handle: RePEc:bof:bofitp:2003_003
    as

    Download full text from publisher

    File URL: https://helda.helsinki.fi/bof/bitstream/123456789/8309/1/106908.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Angus Deaton & Guy Laroque, 1992. "On the Behaviour of Commodity Prices," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 1-23.
    2. anonymous, 1995. "Does the bouncing ball lead to economic growth?," Regional Update, Federal Reserve Bank of Atlanta, issue Jul, pages 1-2,4-6.
    3. Calderon Cesar Augusto & Chong Alberto & Loayza Norman V., 2002. "Determinants of Current Account Deficits in Developing Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-33, March.
    4. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
    5. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.
    6. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834.
    7. Christopher Kent, 1997. "The Response of the Current Account to Terms of Trade Shocks: A Panel-data Study," RBA Research Discussion Papers rdp9705, Reserve Bank of Australia.
    8. 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.
    9. Abdur Chowdhury, 2001. "The Impact of Financial Reform on Private Savings in Bangladesh," WIDER Working Paper Series DP2001-78, World Institute for Development Economic Research (UNU-WIDER).
    10. Maurice Obstfeld, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 251-270.
    11. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    12. Aizenman, Joshua, 1998. "Buffer stocks and precautionary savings with loss aversion," Journal of International Money and Finance, Elsevier, vol. 17(6), pages 931-947, December.
    13. 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.
    14. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    15. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    16. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
    17. Nauro F. Campos & Yuko Kinoshita, 2002. "Foreign Direct Investment as Technology Transferred: Some Panel Evidence from the Transition Economies," Manchester School, University of Manchester, vol. 70(3), pages 398-419, June.
    18. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
    19. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-285, May.
    20. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    21. Alessie, Rob & Lusardi, Annamaria, 1997. "Consumption, saving and habit formation," Economics Letters, Elsevier, vol. 55(1), pages 103-108, August.
    22. Jozef Konings & Marian Rizov & Hylke Vandenbussche, 2002. "Investment and Credit Constraints in Transition Economies: Micro Evidence from Poland, the Czech Republic, Bulgaria and Romania," LICOS Discussion Papers 11202, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    23. Edwards, Sebastian, 1989. "Temporary Terms-of-Trade Disturbances, the Real Exchange Rate and the Current Account," Economica, London School of Economics and Political Science, vol. 56(223), pages 343-357, August.
    24. Carmen M. Reinhart & Peter Wickham, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 175-213, June.
    25. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    26. International Monetary Fund, 1999. "Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks: The Experience of the Oil-Exporting Developing Countries," IMF Working Papers 1999/134, International Monetary Fund.
    27. Roxana Radulescu & David Barlow, 2002. "The relationship between policies and growth in transition countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(3), pages 719-745, November.
    28. World Bank, 2000. "Global Economic Prospects and the Developing Countries 2000," World Bank Publications, The World Bank, number 14776, July.
    29. Marianne Baxter & Michael A. Kouparitsas, 2006. "What Can Account for Fluctuations in the Terms of Trade?," International Finance, Wiley Blackwell, vol. 9(1), pages 63-86, May.
    30. Cashin, Paul & McDermott, C. John & Scott, Alasdair, 2002. "Booms and slumps in world commodity prices," Journal of Development Economics, Elsevier, vol. 69(1), pages 277-296, October.
    31. Denizer, Cevdet & Wolf, Holger & Ying, Yvonne, 2002. "Household Savings in the Transition," Journal of Comparative Economics, Elsevier, vol. 30(3), pages 463-475, September.
    32. Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
    33. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-380, November.
    34. Bowsher, Clive G., 2002. "On testing overidentifying restrictions in dynamic panel data models," Economics Letters, Elsevier, vol. 77(2), pages 211-220, October.
    35. Bevan, David & Collier, Paul & Gunning, Jan Willem, 1993. "Trade shocks in developing countries: Consequences and policy responses," European Economic Review, Elsevier, vol. 37(2-3), pages 557-565, April.
    36. Edison, Hali J. & Levine, Ross & Ricci, Luca & Slok, Torsten, 2002. "International financial integration and economic growth," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 749-776, November.
    37. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
    38. Oleksiy Ivaschenko, 2002. "Growth and Inequality: Evidence from Transitional Economies," CESifo Working Paper Series 746, CESifo.
    39. Ashok K. Lahiri, 1989. "Dynamics of Asian Savings: The Role of Growth and Age Structure," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 228-261, March.
    40. Mrs. Anuradha Dayal-Gulati & Mr. Christian Thimann, 1997. "Saving in Southeast Asia and Latin America Compared: Searching for Policy Lessons," IMF Working Papers 1997/110, International Monetary Fund.
    41. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    42. Chowdhury, Abdur R, 1993. "Does Exchange Rate Volatility Depress Trade Flows? Evidence from Error-Correction Models," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 700-706, November.
    43. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
    44. Abdur Chowdhury, 2001. "External Debt and Growth in Developing Countries: A Sensitivity and Causal Analysis," WIDER Working Paper Series DP2001-95, World Institute for Development Economic Research (UNU-WIDER).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdur R. Chowdhury, 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," Macroeconomics 0303006, University Library of Munich, Germany.
    2. Abdur R Chowdhury, 2004. "Private Savings in Transition Economies: Are there Terms of Trade Shocks?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 46(4), pages 487-514, December.
    3. Chowdhury, Abdur, 2015. "Terms of trade shocks and private savings in the developing countries," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 1122-1134.
    4. 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.
    5. Manuchehr Irandoust, 2017. "Saving behaviour under terms-of-trade uncertainty: evidence from hidden cointegration approach," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 10(2), pages 135-150, May.
    6. Baharumshah, Ahmad Zubaidi & Slesman, Ly & Wohar, Mark E., 2016. "Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence," Economic Systems, Elsevier, vol. 40(4), pages 638-657.
    7. Smaoui, Houcem & Nechi, Salem, 2017. "Does sukuk market development spur economic growth?," Research in International Business and Finance, Elsevier, vol. 41(C), pages 136-147.
    8. Bayoumi, Tamim & Masson, Paul R & Samiei, Hossein, 1996. "International Evidence on the Determinants of Saving," CEPR Discussion Papers 1368, C.E.P.R. Discussion Papers.
    9. Calderon Cesar Augusto & Chong Alberto & Loayza Norman V., 2002. "Determinants of Current Account Deficits in Developing Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-33, March.
    10. Merike Kukk & Karsten Staehr, 2015. "Macroeconomic factors in corporate and household saving. Evidence from Central and Eastern Europe," Bank of Estonia Working Papers wp2015-5, Bank of Estonia, revised 30 Dec 2015.
    11. Ken Chamuva Shawa, 2016. "Drivers Of Private Saving In Sub-Saharan African Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(2), pages 77-110, June.
    12. Vusal Musayev, 2016. "Externalities in Military Spending and Growth: The Role of Natural Resources as a Channel through Conflict," Defence and Peace Economics, Taylor & Francis Journals, vol. 27(3), pages 378-391, June.
    13. Antonio R Andrés & Simplice Asongu, 2016. "Global trajectories, dynamics, and tendencies of business software piracy: benchmarking IPRs harmonization," Journal of Economic Studies, Emerald Group Publishing, vol. 43(5), pages 780-800, October.
    14. Mr. Paul Cashin & Mr. C. John McDermott, 1998. "Terms of Trade Shocks and the Current Account," IMF Working Papers 1998/177, International Monetary Fund.
    15. Grigoli, Francesco & Herman, Alexander & Schmidt-Hebbel, Klaus, 2018. "Saving in the world," World Development, Elsevier, vol. 104(C), pages 257-270.
    16. Musayev, Vusal, 2013. "Military Spending and Growth: An Empirical Exploration of Contingent Relationships," MPRA Paper 59783, University Library of Munich, Germany.
    17. Roberto Ganau, 2017. "Institutions and economic growth in Africa: a spatial econometric approach," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(3), pages 425-444, December.
    18. Araujo, Juliana D. & Li, Bin Grace & Poplawski-Ribeiro, Marcos & Zanna, Luis-Felipe, 2016. "Current account norms in natural resource rich and capital scarce economies," Journal of Development Economics, Elsevier, vol. 120(C), pages 144-156.
    19. Paul Cashin & C. John McDermott, 2003. "Intertemporal Substitution and Terms‐of‐Trade Shocks," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 604-618, September.
    20. Mohamed Ilyes Gritli & Fatma Marrakchi Charfi, 2016. "Capital Account, Institutional Quality, And Economic Growth In Mena Countries: A Gmm Approach," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 1-23, December.

    More about this item

    Keywords

    transition; private savings; terms of trade;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bof:bofitp:2003_003. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/bofitfi.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Minna Nyman (email available below). General contact details of provider: https://edirc.repec.org/data/bofitfi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.