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Saving, Investment, and Current Account Surplus in Developing Asia

Author

Listed:
  • Park, Donghyun

    (Asian Development Bank)

  • Shin, Kwanho

    (Asian Development Bank)

Abstract

An integral part of global current account imbalances is the large and persistent current account surplus developing Asia has run since the 1997–1998 Asian crisis. A country’s current account surplus is, by definition, equal to its net saving. The central objective of this paper is to investigate the extent to which the saving and investment rate of Asian countries can be explained by the underlying fundamental determinants of saving and investment such as gross domestic product growth and demographic factors. Our empirical analysis yields two key findings. First, we find stronger evidence of oversaving than underinvestment in the region. Second, we find stronger evidence of overinvestment prior to the Asian crisis than underinvestment after the Asian crisis. This suggests that the key to rebalancing Asian growth toward domestic sources lies in promoting consumption rather than investment.

Suggested Citation

  • Park, Donghyun & Shin, Kwanho, 2009. "Saving, Investment, and Current Account Surplus in Developing Asia," ADB Economics Working Paper Series 158, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0158
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    File URL: http://www.adb.org/Documents/Working-Papers/2009/Economics-WP158.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Kim, Soyoung & Lee, Jong-Wha, 2008. "Demographic changes, saving, and current account: An analysis based on a panel VAR model," Japan and the World Economy, Elsevier, vol. 20(2), pages 236-256, March.
    4. Hiro Ito & Menzie Chinn, 2009. "East Asia and Global Imbalances: Saving, Investment, and Financial Development," NBER Chapters,in: Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18, pages 117-150 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Reda Cherif & Fuad Hasanov, 2012. "The Volatility Trap; Precautionary Saving, Investment, and Aggregate Risk," IMF Working Papers 12/134, International Monetary Fund.
    2. Raghav Gaiha & Katsushi S. Imai & Ganesh Thapa & Woojin Kang, 2009. "Fiscal Stimulus, Agricultural Growth and Poverty in Asia and the Pacific Region: Evidence from Panel Data," The School of Economics Discussion Paper Series 0919, Economics, The University of Manchester.
    3. Guonan Ma & Robert McCauley & Lillie Lam, 2013. "The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 72-84, February.
    4. Adams , Charles & Park, Donghyun, 2009. "Causes and Consequences of Global Imbalances: Perspective from Developing Asia," Asian Development Review, Asian Development Bank, vol. 26(1), pages 19-47.
    5. 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.
    6. Ismail, Aisha & Rashid, Kashif, 2013. "Determinants of household saving: Cointegrated evidence from Pakistan (1975–2011)," Economic Modelling, Elsevier, vol. 32(C), pages 524-531.
    7. Florian Brugger, 2015. "Asia’s Reserve Accumulation: Part of a New Paradigm," Working Paper Series, Social and Economic Sciences 2015-03, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    8. Juann H. Hung & Rong Qian, 2010. "Why Is China's Saving Rate So High? A Comparative Study of Cross-Country Panel Data: Working Paper 2010-07," Working Papers 21920, Congressional Budget Office.
    9. Sahoo, Pravakar & Dash, Ranjan Kumar, 2013. "Financial sector development and domestic savings in South Asia," Economic Modelling, Elsevier, vol. 33(C), pages 388-397.
    10. 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.

    More about this item

    Keywords

    Saving; investment; current account balance; global imbalance; Asia;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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