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Saving and Demographic Change: The Global Dimension

Author

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  • Barry Bosworth
  • Gabriel Chodorow-Reich

    () (Brookings Institution)

Abstract

This paper uses a panel data set of 85 countries covering 1960-2005 to investigate the macroeconomic linkages between national rates of saving and investment and population aging. The issue takes on added significance because of the recent suggestion that the decline in global interest rates has been driven by demographic changes in the industrial economies. We do find a significant correlation between the age composition of the population and nations’ rates of saving and investment, but the effects vary substantially by region. They are very strong for the non-industrial economies of Asia, but weak in the high-income countries. We also find evidence of demographic effects on both the public and private components of national saving. Furthermore, we conclude that the demographic effects on saving will be less disruptive than sometimes believed because of offsetting declines in investment. However, the effects on saving are stronger than those for investment, implying that most aging economies will ultimately be pushed in the direction of current account deficits. In contrast to some of the recent discussion, we find that demographic change is already exerting a downward pressure on saving in the high-income economies and that the current evidence of a global saving glut is related more to the weakness of investment – particularly in Asia – and the high short-run saving of the oil-producing countries. We conclude with a discussion of why the effects appear to be so strong in Asia.

Suggested Citation

  • Barry Bosworth & Gabriel Chodorow-Reich, 2007. "Saving and Demographic Change: The Global Dimension," Working Papers, Center for Retirement Research at Boston College wp2007-02, Center for Retirement Research, revised Feb 2007.
  • Handle: RePEc:crr:crrwps:wp2007-02
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    File URL: http://crr.bc.edu/working-papers/saving-and-demographic-change-the-global-dimension/
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    References listed on IDEAS

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    1. David E. BLOOM & Jocelyn E. FINLAY, 2009. "Demographic Change and Economic Growth in Asia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 4(1), pages 45-64.
    2. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    3. T. Paul Schultz, 2004. "Demographic Determinants of Savings: Estimating and Interpreting the Aggregate Association in Asia," Working Papers 901, Economic Growth Center, Yale University.
    4. Fair, Ray C & Dominguez, Kathryn M, 1991. "Effects of the Changing U.S. Age Distribution on Macroeconomic Equations," American Economic Review, American Economic Association, vol. 81(5), pages 1276-1294, December.
    5. 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, vol. 39(2), pages 343-369, May.
    6. repec:idb:wpaper:412 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Horioka, Charles Yuji & Terada-Hagiwara, Akiko, 2012. "The determinants and long-term projections of saving rates in Developing Asia," Japan and the World Economy, Elsevier, vol. 24(2), pages 128-137.
    2. Busl, Claudia & Iliewa, Zwetelina & Jokisch, Sabine & Kappler, Marcus & Roscher, Thomas & Schindler, Felix & Schleer, Frauke, 2012. "Endbericht an das Bundesministerium der Finanzen zum Forschungsauftrag fe 11/11: "Sparen und Investieren vor dem Hintergrund des demografischen Wandels"," ZEW Expertises, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 110554.
    3. Charles Yuji Horioka & Akiko Terada-Hagiwara, 2016. "The Impact of Pre-marital Sex Ratios on Household Saving in Two Asian Countries: The Competitive Saving Motive Revisited," ISER Discussion Paper 0975, Institute of Social and Economic Research, Osaka University.
    4. Ismail, Aisha & Rashid, Kashif, 2013. "Determinants of household saving: Cointegrated evidence from Pakistan (1975–2011)," Economic Modelling, Elsevier, vol. 32(C), pages 524-531.
    5. repec:eee:joecag:v:9:y:2017:i:c:p:185-207 is not listed on IDEAS
    6. 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.
    7. Kwanho Shin, 2010. "Comment on "Population Aging and Economic Growth in Asia"," NBER Chapters,in: The Economic Consequences of Demographic Change in East Asia, NBER-EASE Volume 19, pages 90-92 National Bureau of Economic Research, Inc.
    8. Park, Donghyun & Shin, Kwanho, 2009. "Saving, Investment, and Current Account Surplus in Developing Asia," ADB Economics Working Paper Series 158, Asian Development Bank.
    9. Zhai, Fan & Lin, Tun & Byambadorj, Enerelt, 2009. "A General Equilibrium Analysis of the Impact of Climate Change on Agriculture in the People’s Republic of China," Asian Development Review, Asian Development Bank, vol. 26(1), pages 206-225.
    10. repec:sos:sosjrn:170208 is not listed on IDEAS
    11. Andrew Mason & Sang-Hyop Lee, 2012. "Population, wealth, and economicgrowth in Asia and the Pacific," Chapters,in: Aging, Economic Growth, and Old-Age Security in Asia, chapter 2, pages 32-82 Edward Elgar Publishing.

    More about this item

    Keywords

    national saving rates; populating aging; global interest rates; investment; demographic change;

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