International Evidence on the Determinants of Private Saving

Abstract

A broad set of possible determinants of private saving behavior is examined using data for a large sample of industrial and developing countries. Both time-series and crosssectional estimates are obtained. Results suggest that there is a partial offset on private saving of changes in public saving and (for developing countries) in foreign saving, that demographics and groivth are important determinants of private saving rates, and that interest rates and terms of trade have positive, but less robust, effects. Increases in per capita gross domestic product seem to increase saving at low income levels (relative to the United States) but decrease it at higher ones.Despite an extensive literature on saving behavior, several empirical issues have not been resolved conclusively, including the effects of real interest rates, demographic factors, and per capita income on private saving; the relationship between growth and saving; and the extent to which private saving offsets movements in public (dis)saving (Aghevli and others 1990 andDeaton 1992). This article extends the empirical knowledge of private saving behavior by exploiting data for a large sample of industrial and developing countries and by looking at a broad set of possible determinants of private saving. It uses both time-series and cross-sectional information because the variability of potential explanatory variables differs in those two dimensions. In particular, some variables seem to explain persistent country differences (for example, dependency ratios or relative per capita income), while others are correlated with year-to-year fluctuations (for example, the terms of trade or growth in gross domestic product-GDP). Fiscal variables seem to explain both some persistent long-term differences and short-term fluctuations.The existing literature tends to be limited to one of these two dimensions, one of the few exceptions being Schmidt-Hebbel, Webb, and Corsetti (1992), who use panel data to study behavior across developing countries. 1 Conclusions con-1. After the first version of this article was drafted, we discovered a study by Edwards (1996), covering related issues and coming to similar conclusions, but with a somewhat different empirical and policy emphasis.

Current accounts and oil price fluctuations in oil-exporting countries: The role of financial development

“…19 Through this saving channel 20 , higher dependency ratios affect negatively current account positions. This finding is consistent with the conclusions obtained-especially for developing countries-by Masson et al (1998), Chinn and Prasad (2003), Gruber and Kamin (2007) or Chinn and Ito (2008) among others.…”

Empirical Investigation of the Determinants of Tanzania’s National Savings

“…Thus, countries with higher GDP growth rates are expected to have higher savings than countries with lower growth rates. However, the size of this effect is likely to decline as GDP growth rises and may even become negative for rich countries where investment opportunities and growth are relatively lower (Masson et al, 1998). In another aspect, although, the life cycle model suggests that inflation does not have a real impact on saving behaviour because of the absence of money illusion, macroeconomic instability in the form of inflation is likely to rise savings since risk-averse consumers tend to save more as a precaution against possible adverse changes in future income (Loayza et al, 2000).…”

Consumption and population age structure

“…Thus, these studies usually confirm the predictions of the life cycle model, finding that savings decrease, or aggregate consumption rises, when the share of elderly persons in the population increases. Among these are Attfield and Cannon (2003), Higgins (1998), Horioka (1997), Masson et al (1996) and Fair and Dominguez (1991) 2 . On the other hand, studies using household survey data often find no, or only modest, effects on savings of changes in the age distribution of the population, e.g.…”