IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/5097.html
   My bibliography  Save this paper

Why are Saving Rates so Different Across Countries?: An International Comparative Analysis

Author

Listed:
  • Sebastian Edwards

Abstract

This paper analyzes the determinants of savings in the world economy, and discusses why saving ratios have been so uneven across countries. A distinction is made between private and government savings, using panel data for 36 countries, from 1970 to 1992. In particular, it is assumed that government savings are not completely exogenous, and respond to both economic and political (strategic) determinants, along the lines of the recent literature on the political economy of macroeconomic policy. Using instrumental variables estimation methods it is found that per capita growth is one of the most important determinants of both private and public savings. The results indicate that government-run social security systems affect private savings negatively. In addition, the results provide some support for the political economy perspective to government finances, which evidences a different underlying process determining public savings. Public savings tend to be lower in countries with higher political instability. Higher government savings crowd out private savings, but in a less than proportional fashion. Higher levels of foreign savings - i.e. reductions in the current account balance - are associated with lower domestic (both private and public) saving rates, although the degree of offset is also less than proportional. The degree of financial development turns out to be another important determinant of private savings. The results are mixed regarding the role of borrowing constraints - a topic deserving additional research attention.

Suggested Citation

  • Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5097
    Note: IFM ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w5097.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gelb, Alan H., 1989. "Financial policies, growth, and efficiency," Policy Research Working Paper Series 202, The World Bank.
    2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    3. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January.
    4. Kotlikoff, Laurence J, 1984. "Taxation and Savings: A Neoclassical Perspective," Journal of Economic Literature, American Economic Association, vol. 22(4), pages 1576-1629, December.
    5. Gylfason, T., 1993. "Optimal Saving, Interest Rates and Endogenous Growth," Papers 539, Stockholm - International Economic Studies.
    6. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    7. King, Robert G. & Levine, Ross, 1994. "Capital fundamentalism, economic development, and economic growth," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 259-292, June.
    8. repec:bla:scandj:v:95:y:1993:i:4:p:517-33 is not listed on IDEAS
    9. Maurice Obstfeld., 1998. "Foreign Resource Inflows, Saving, and Growth," Center for International and Development Economics Research (CIDER) Working Papers C98-099, University of California at Berkeley.
    10. repec:ucp:bkecon:9780226184890 is not listed on IDEAS
    11. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    12. R McKinnon, 1991. "Financial Control in the Transition to a Market Economy," CEP Discussion Papers dp0040, Centre for Economic Performance, LSE.
    13. Gersovitz, Mark, 1988. "Saving and development," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 10, pages 381-424, Elsevier.
    14. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444606, October.
    15. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    16. Corbo, Vittorio & Schmidt-Hebbel, Klaus, 1991. "Public policies and saving in developing countries," Journal of Development Economics, Elsevier, vol. 36(1), pages 89-115, July.
    17. Carroll, Christopher D. & Weil, David N., 1994. "Saving and growth: a reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 133-192, June.
    18. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324, Elsevier.
    19. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    20. Martin Feldstein, 1980. "International Differences in Social Security and Saving," NBER Chapters, in: Econometric Studies in Public Finance, pages 225-244, National Bureau of Economic Research, Inc.
    21. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 445-502.
    22. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    23. Jeffrey A. Frankel, 1985. "International capital mobility and crowding-out in the U.S. economy: imperfect integration of financial markets or of goods markets?," Proceedings, Federal Reserve Bank of St. Louis, pages 33-74.
    24. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    25. 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.
    26. Susan M. Collins, 1991. "Saving Behavior in Ten Developing Countries," NBER Chapters, in: National Saving and Economic Performance, pages 349-376, National Bureau of Economic Research, Inc.
    27. Easterly, William & King, Robert & Levine, Ross & Rebe, 1991. "How do national policies affect long-run growth? : a research agenda," Policy Research Working Paper Series 794, The World Bank.
    28. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    29. Schmidt-Hebbel, Klaus & Serven, Luis & Solimano, Andres, 1996. "Saving and Investment: Paradigms, Puzzles, Policies," The World Bank Research Observer, World Bank, vol. 11(1), pages 87-117, February.
    30. Edwards, Sebastian, 1988. "Financial deregulation and segmented capital markets: The case of Korea," World Development, Elsevier, vol. 16(1), pages 185-194, January.
    31. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 3-27, April.
    32. Haque, Nadeem U. & Montiel, Peter, 1991. "Capital mobility in developing countries: Some empirical tests," World Development, Elsevier, vol. 19(10), pages 1391-1398, October.
    33. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444590, October.
    34. Kokila Doshi, 1994. "Determinants Of The Saving Rate: An International Comparison," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 37-45, January.
    35. Salvador Valdés & Peter Diamond, "undated". "Social Security Reforms in Chile," Documentos de Trabajo 161, Instituto de Economia. Pontificia Universidad Católica de Chile..
    36. Fumio Hayashi, 1986. "Why Is Japan's Saving Rate So Apparently High?," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 147-234, National Bureau of Economic Research, Inc.
    37. Giovannini, Alberto, 1983. "The interest elasticity of savings in developing countries: The existing evidence," World Development, Elsevier, vol. 11(7), pages 601-607, July.
    38. Fumio Hayashi, 1989. "Is Japan's saving rate high?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 13(Spr), pages 3-9.
    39. 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.
    40. Alwyn Young, 1994. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," NBER Working Papers 4680, National Bureau of Economic Research, Inc.
    41. Tullio Jappelli & Marco Pagano, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 83-109.
    42. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July.
    43. Martin Feldstein, 1994. "Tax policy and international capital flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(4), pages 675-697, December.
    44. Christopher D. Carroll & Lawrence H. Summers, 1991. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Chapters, in: National Saving and Economic Performance, pages 305-348, National Bureau of Economic Research, Inc.
    45. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
    46. Sebastian Edwards & Guido Tabellini, 1991. "Political Instability, Political Weakness and Inflation: An Empirical Analysis," NBER Working Papers 3721, National Bureau of Economic Research, Inc.
    47. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
    48. Rudiger Dornbusch, 1990. "From Stabilization to Growth," NBER Working Papers 3302, National Bureau of Economic Research, Inc.
    49. Shoven, John B. & Bernheim, B. Douglas (ed.), 1991. "National Saving and Economic Performance," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226044040.
    50. Hollis Chenery† & T.N. Srinivasan (ed.), 1988. "Handbook of Development Economics," Handbook of Development Economics, Elsevier, edition 1, volume 1, number 1.
    51. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-555, June.
    52. Sala-I-Martin, X., 1992. "Public Welfare and Growth," Papers 666, Yale - Economic Growth Center.
    53. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. Sebastian Edwards, 1996. "Public Sector Deficits and Macroeconomic Stability in Developing Countries," NBER Working Papers 5407, National Bureau of Economic Research, Inc.
    3. repec:idb:brikps:377 is not listed on IDEAS
    4. Sebastian Edwards, 1995. "Public sector deficits and macroeconomic stability in developing economies," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 307-373.
    5. Ibrahim A. Elbadawi & Francis M. Mwega, 2000. "Can Africa's Saving Collapse Be Reversed?," The World Bank Economic Review, World Bank, vol. 14(3), pages 415-443, September.
    6. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2001. "Una Revisión del COmportamiento y de los determinantes del ahorro en el mundo," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 2, pages 13-48, Central Bank of Chile.
    7. Patrick Honohan, 1995. "The Impact of Financial and Fiscal Policies on Saving," Papers WP059, Economic and Social Research Institute (ESRI).
    8. Cardenas, Mauricio & Escobar, Andres, 1998. "Saving determinants in Colombia: 1925-1994," Journal of Development Economics, Elsevier, vol. 57(1), pages 5-44, October.
    9. Alemayehu, Geda & Haile, Kebret, 2006. "Aggregate saving Behavior in Africa: a review of the Theory & the existing evidence with new empirical Results," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 12(1), pages 1-73.
    10. Thomas M. Steger, 2000. "Productive Consumption and Growth in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 4(3), pages 365-375, October.
    11. Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "Does income inequality raise aggregate saving?," Journal of Development Economics, Elsevier, vol. 61(2), pages 417-446, April.
    12. Ndanshau, Michael O. A. & Kilindo, Ali A. L., 2012. "Interest Rates and Financial Savings in Tanzania: 1967 - 2010," MPRA Paper 44387, University Library of Munich, Germany, revised Jan 2013.
    13. Andrés Solimano & Mario Gutierrez, 2008. "Savings, Investment and Capital Accumulation," Chapters, in: Amitava Krishna Dutt & Jaime Ros (ed.), International Handbook of Development Economics, Volumes 1 & 2, volume 0, chapter 19, Edward Elgar Publishing.
    14. Alan M. Taylor, 1995. "Growth and Convergence in the Asia-Pacific Region: On the Role of Openness, Trade and Migration," NBER Working Papers 5276, National Bureau of Economic Research, Inc.
    15. B. Bosworth & S. M. Collins & Y. Chen, "undated". "Accounting for Difference in Economic Growth," Discussion Papers 115, Brookings Institution International Economics.
    16. Schmidt-Hebbel, Klaus & Serven, Luis, 1996. "Income inequality and aggregate saving : the cross-country evidence," Policy Research Working Paper Series 1561, The World Bank.
    17. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    18. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "Saving in Developing Countries: An Overview," The World Bank Economic Review, World Bank, vol. 14(3), pages 393-414, September.
    19. Rodrigo Vergara, 2001. "Determinantes del ahorro privado," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 4, pages 83-104, Central Bank of Chile.
    20. Kar Muhsin & Peker Osman & Kaplan Muhittin, 2008. "Trade Liberalization, Financial Development and Economic Growth in The Long Term: The Case of Turkey," South East European Journal of Economics and Business, Sciendo, vol. 3(2), pages 25-38, November.
    21. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "The Poverty of Nations: A Quantitative Exploration," NBER Working Papers 5414, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

    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:nbr:nberwo:5097. See general information about how to correct material in RePEc.

    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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.