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What is the Relationship between National Saving and Investment in Latin America and the Caribbean?

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  • Cavallo, Eduardo A.
  • Pedemonte, Mathieu

Abstract

Using panel co-integration techniques and a comprehensive dataset covering the period 1980-2013, this paper finds a positive and significant correlation between national saving and domestic investment rates in Latin America and the Caribbean (LAC). The estimated correlation is approximately 0. 39; i. e. , for every 1 percentage point of GDP increase in national saving, domestic investment increases by 0. 39 percentage points on average. There are however, three nuances to the headline result: i) the estimated correlation has been declining over time; ii) the regional average hides a large degree of intra-regional heterogeneity; and iii) the estimated coefficient is largest amongst the biggest economies in the region. It is concluded that low national saving rates remain a binding constraint for capital accumulation in LAC.

Suggested Citation

  • Cavallo, Eduardo A. & Pedemonte, Mathieu, 2015. "What is the Relationship between National Saving and Investment in Latin America and the Caribbean?," IDB Publications (Working Papers) 7204, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:7204
    DOI: https://doi.org/10.18235/0000138
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    Cited by:

    1. Vasudeva N. R. Murthy & Natalya Ketenci, 2020. "Capital mobility in Latin American and Caribbean countries: new evidence from dynamic common correlated effects panel data modeling," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-17, December.
    2. Duy-Tung Bui, 2018. "Fiscal policy and national saving in emerging Asia: challenge or opportunity?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 305-322, August.
    3. William B.P. Robson, 2017. "Enduring Virtues: Saving and Investing as National Priorities in 2017," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 467, January.

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    More about this item

    Keywords

    Panel cointegration; Investment; Feldstein-Horioka puzzle; Saving;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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