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SAVING TRANSITIONS*
Dani Rodrik
Harvard University
John F. Kennedy School of Government
79 Kennedy Street
Cambridge, MA 02138
(617) 495-9454
Fax: (617) 496-5747
E-mail: [email protected]
Draft
July 1998
* Paper prepared as part of the World Bank research project on saving. I am grateful to Luis
Serven for detailed suggestions, Chad Steinberg for excellent research assistance, and Joanna
Veltri for editorial and research help.
I.
Introduction
Accumulation of physical capital is the proximate source of economic growth. While the
short-run relationship between investment and growth tends to be weak at best, in the long-run
the investment rate turns out to be he most robust correlate of growth.1 As a matter of
accounting necessity, investment has to be financed by saving, from either domestic or foreign
sources. In practice, there have been few cases of high-investment countries, perhaps none at all,
where foreign saving has accounted for more than 20 percent of investment over long stretches of
time. In an economy investing, say, 30 percent of its GDP, relying on foreign saving beyond this
limit would imply running a persistent current account deficit in excess of 6 percent of GDP,
which would be courting with disaster. Hence the critical importance of domestic saving in
economic growth follows immediately from a few straightforward facts of economic life.
Indeed, differences in saving rates are a clear distinguishing factor between thriving
economies and stagnant ones. Over the 1984-94 period, there were 31 countries in which percapita GDP grew at an annual average rate of 2.5 percent or higher. In this set of successful
countries, the median saving rate was 24 percent.2 By contrast, the median saving rate in the 59
countries in which per-capita income grew at less than 1 percent per year stood at 16 percent.
Assuming all domestic saving translates into domestic investment, and that the long-run
incremental capital-output ratio is around 5, virtually all of the gap in growth between these two
groups of countries can be “accounted” for by the difference in their saving performance.
1
2
See Easterly (1997) on the short-run, and Levine and Renelt (1992) on the long-run.
Unless otherwise mentioned, all saving rates in this paper refer to the ratio of gross national saving to gross
national disposable income, as defined in the World Bank saving database.
2
But of course such calculations tell us precious little about the underlying economics of
high growth and the policies that enable it. High-growth countries share many other
characteristics besides high saving and investment: they tend to have lower inflation rates, smaller
budget deficits, better human resources, lower current account deficits, and higher shares of trade
in GDP (see Table 1, taken from IMF 1997). Which if these factors drive growth, if any? Do we
need to have them all together, or are some simply the consequence of growth? And even if we
were to accept the causal role played by investment, we can ask whether increases in saving are
sufficient as well as necessary for investment and growth. How likely are saving transitions to
result in higher growth? Finally, to the extent that saving is responsible for investment and
growth, what policies and institutional arrangements generate increased saving?
The empirical literature that deals with saving has three strands. One line of research has
focused on the cross-national determinants of saving, applying econometric techniques to large
cross-national or panel data sets (Giovannini 1985, Edwards 1996, Harrigan 1996, Loayza,
Schmidt-Hebbel, and Serven 1998). This research has emphasized quantifiables, in particular the
roles of demographic conditions, fiscal policy, financial depth, and economic growth itself. The
initial focus in this literature was on the role of deposit interest rates in mobilizing saving. Partly
because of negative findings, attention has turned to a broader set of structural and institutional
determinants.
A second strand has focused on the question of causality between saving and growth
(Carroll and Weil 1993, Attanasio, Picci, and Scorcu 1997). There are strong hints in this
research that it is growth that drives saving rather than vice versa, especially over short horizons.
This result has led some analysts to suggest that saving should not receive high priority in
3
designing growth strategies: once the obstacles to growth are removed, the response of saving
could be nearly automatic (see for example Gavin, Hausmann, and Talvi 1996).
Finally, there are a number of analytical case studies that focus on high-saving countries or
countries that have undergone transitions to high saving, such as Japan, Korea, Taiwan, and Chile,
to uncover the determinants of saving and growth transitions in specific settings (Marfan and
Bosworth 1994, Hayashi 1986, Rodrik 1995). This strand reinforces some of the findings of the
cross-national regressions—the importance of demography, for example—as well as pointing out
idiosyncratic conditions—such as investment subsidies (Korea and Taiwan) or pension-system
reforms (Chile).
The present paper relates to all three of these strands. My central pre-occupation is with
countries that have undergone sustained saving transitions, to be defined more precisely below.
The objective is to understand the causes and consequences of saving transitions. So the paper
has a natural link to the case study literature. However, I take a systematic cross-national
approach to identifying saving transitions, and this throws up a lot of cases that have scarcely
received attention in the past. This allows me to check the importance of the standard
determinants of saving for the sub-sample of transition countries. It also allows me to re-examine
the question of causality between growth and saving, using a different approach and over varying
time horizons.
The outline of the rest of the paper is as follows. In section II, I discuss my definition of a
“saving transition” and list the 20 cases that qualify. Section III provides an overview of the
contours of a “typical” saving transition. Section IV focuses on the inter-relationships among
saving, growth, and investment during saving transitions. Section V analyzes saving behavior in
countries that undergo growth transitions. Short-run leads and lags among saving, growth, and
4
investment in our sample of countries are examined in section VI. Section VII provides
econometric evidence on the determinants of saving in our sample. Section VIII discusses at
greater length the experiences of the following countries: South Korea, Taiwan, Singapore,
Mauritius, and Chile. Finally, section IX provides some concluding remarks.
II.
Defining a saving transition
The central problem in the theory of economic development, wrote W. Arthur Lewis
(1954, 155), “is to understand the process by which a community which was previously saving
and investing 4 or 5 percent of its national income converts itself into an economy where
voluntary saving is running about 12 to 15 percent of the national income or more.”3 Hence,
Lewis viewed saving transitions as key to economic development. Countries with the most
successful growth records in the post-war period have indeed gone through spectacular saving
transitions.
Figure 1 shows the examples of South Korea and Botswana. In Korea, the saving rate
stood barely above 10 percent in the early 1960s. By the mid-1970s, it had risen to above 20
percent, and by the late 1980s it was above 30 percent. In Botswana, the saving rate has been
more erratic, but has gone from 11 percent in 1971 (the earliest year for which the World Bank’s
saving data base provides a figure), to above 30 percent in the mid-1980s, and has reached all the
way to 53 percent in 1989 before declining thereafter. Lewis would have been astonished to see
saving rates so high, but not surprised to learn that these two countries were placed at the very
top of the economic growth league in the last three decades.
3
Lewis’ answer was based on the classical model emphasizing the functional distribution of income: as the profit
share of national income rose, the rate of aggregate saving would rise alongside it.
5
When one mentions “saving transition” one immediately thinks of a handful of East Asian
countries and a few others elsewhere (such as Botswana, and Chile since the second half of the
1980s). The approach in this paper is to look at saving transitions more systematically, by
applying a common definition to the cross-national data. This has the advantage that we can look
beyond the usual suspects, and avoid the optical illusions produced by a focus on a narrow set of
countries.
My definition of a saving transition is inspired by Lewis. I define a transition as a
sustained increase in the saving rate by more than 5 percentage points of national income. To
make this definition operational, I apply the following filter to the time-series of saving rates for
each country. A country is said to undergo an investment transition at year T if the three-year
moving average of its investment rate over a nine-year period starting at T exceeds by more than 5
percentage points the five-year average of its investment rate prior to T. I excluded from the
analysis countries that have been the recipient of large resource windfalls, such as the major oil
exporting countries. I also excluded cases where the post-transition saving rate remained below
10 percent.
~
More precisely, define ST as the three-year moving average of the saving rate with year T
the first year of the average, and S$T as the five-year moving average with year T the terminal
~
year. For example, S1965 corresponds to the average for the years 1965, 1966, and 1967, while
S$1965 is the average for the years 1961 through 1965. Applying our filter amounts to searching
through the data for occurrences of any T such that the following are true:
~
1. S T + i > S$T −1 + x for all i=0,1,..,n.
6
~
2. S T + i > 0.10 for all i=0,1,..,n.
The parameter x stands for the threshold increase in saving rate (set to 0.05) while n captures the
length of the horizon over which the transition is expected to be sustained. With a nine-year
horizon starting at year 0, n=6. The first of these conditions checks that the (moving-average of
the) saving rate after year T exceeds the prevailing average prior to T by more than 5 percentage
points. The second condition ensures that the average saving rate subsequent to the candidate
transition year exceeds 10 percent. If for any country there is more than a single year for which
these conditions are satisfied, we check whether ten years or more separate the dates. If not, we
assume there is a single transition and designate the earliest year in the sequence as the transition
year.4
The World Bank saving database covers the years 1960-1995.5 However, given the leads
and lags involved in the definition of a transition, the earliest possible year for a transition is 1965,
and the latest year is 1987.
The resulting list of transitions is shown in the first column of Table 2. A total of twenty
transitions is listed, with two cases in the 1960s (Portugal 1965, Panama 1968), thirteen in the
1970s (China 1970, Egypt 1974, Jordan 1972, Lesotho 1977, Malta 1975, Pakistan 1968,
Paraguay 1972, Philippines 1972, Singapore 1971, Sri Lanka 1976, Suriname 1972, Syria 1973,
and Taiwan 1970), and five in the 1980s (Belize 1985, Chile 1985, Costa Rica 1983, Korea 1984,
and Mauritius 1984). The list includes many well-known cases, such as Korea, Singapore,
4
Otherwise, countries would be listed with multiple transition years. However, with the values of n and x selected
for our central case, there were no cases of multiple transitions.
5
Of course, not all countries have coverage over the entire period, and most countries lack data for 1995.
Choosing a definition of saving that is theoretically less appropriate, such as gross domestic saving as a ratio of
GDP, would have increased the available number of observations. Preliminary work indicates, however, that the
qualitative conclusions would remain unaffected.
7
Taiwan, China, Chile and Mauritius, but also many others that are surprises (to me at least). As
mentioned before, one of the advantages to letting the data “reveal” the transitions is that this
allows us to focus on a broader range of countries that goes beyond the familiar cases.6
The transition years generally accord with conventional wisdom regarding the better
known cases. Note however that Korea’s transition date is a rather late 1984. This is because
prior to that date Korea’s saving rate was increasing at a steady but slow pace, and a transition is
not picked up with a filter that requires a jump of 5 percentage points. When the threshold is
lowered to 4 percentage points, Korea is listed as having two transitions, one in 1965 and another
in 1975 (see below).
In general, however, the selection and dating of transitions is not terribly sensitive to the
particular thresholds used in operationalizing my definition. The remaining columns in Table 2
show alternative lists of transitions when the values of x and n are altered. Column (2) reduces by
two years the horizon over which the increase in saving has to be maintained. This change results
in a second transition for Mauritius (1971) and Suriname (1972), as well as twelve additional
transitions in previously not listed countries. Among the additions, the case of Uganda (1988) is
particularly intriguing, in view of the significant reforms that this country has undertaken since
1987. In column (3), the required increase in the saving rate is raised to 7.5 percentage points
(while keeping the horizon same as in column (2)). This reduces the total number of transitions to
16, but also knocks out some clear-cut cases like as Taiwan and Pakistan. Finally, column (4)
restores the original horizon but lowers the threshold to 4 percentage points. This throws up a
6
Botswana, discussed previously, is not included in the table because its diamond discoveries classify it as a
resource-boom country.
8
few new countries such as Hong Kong (1971), Malaysia (1973), and Turkey (1984), and also
makes a difference to the dating of Korea’s transitions as noted before.
A certain arbitrariness in the definition of a saving transition is unavoidable. Each version
of the filter I have used reveals its own anomalies. If the threshold value for the rise in saving is
set high, we overlook cases of more gradual, but sustained increases in saving; if it is set low, we
include too many instances of simple volatility. If the horizon is kept long, we lose countries with
transitions in the 1980s; if it is too short, we pick up many increases in saving which are
temporary. In view of these tradeoffs, the list of transitions in the first column of Table 2 strikes
me as a good starting point
III.
The contours of saving transitions
The typical pattern of a saving transition is represented in Figure 2, which shows the time
paths of the mean and median of the saving rates in our 20-country sample. Rather than
displaying the data chronologically, I have shown them in transition time. Country data are
stacked so that year 0 corresponds to the transition year in each country, year 1 is the first year
thereafter, and so on. The figure reveals that the typical jump in the saving rate around year 0 is
significantly larger than 5 percentage points. The median saving rate in our sample goes from 14
percent in the five years before the transition to 23 percent in the next five years and 25 percent in
the five years thereafter.
The data for each country, averaged in five-year intervals, are shown in Table 3. The most
spectacular cases are those of Belize (an increase from 12 percent to 24 percent), Lesotho (from 9
to 22 percent), and Suriname (from 20 to 41 percent). In one of these cases (Suriname),
however, there is an equally spectacular reversal eventually. We observe similar reversals in four
9
other countries: Egypt, Philippines, Portugal, and Syria. In each one of these cases, the saving
rates in years [T+10, T+14] is back to pre-transition levels. Since the reversal takes place after a
long lag, however, it made sense to keep these countries in the sample. In the remaining
countries, saving rates are substantially higher 10 to 15 years down the line—and in some
instances by more than 20 percentage points (e.g., Lesotho and Singapore).
IV.
Growth, saving and investment
I will discuss the specifics of some of the countries later in this paper. In this section, I
analyze the three-way interrelationship among saving, investment and growth for the whole
sample of transition countries. Figures 3 and 4 plot the median investment and growth rates
alongside saving rates for these countries, with country data stacked according to transition years
as before. The investment rate refers to gross investment as a ratio of gross national disposable
income, while the growth rate is the growth of GNP. Note that the investment and growth rates
are shown relative to the world average for the relevant year. The purpose of benchmarking the
data in this fashion is to take out the effect of cycles common to most countries.
As the figures show, saving transitions are associated with noticeable increases both in
investment and growth rates. The correlation with investment is particularly strong. The median
investment rate in our sample is 1.6 percentage points below the world average prior to the saving
transition. In the first five years of the transition, it increases to 2.5 percentage points above the
world average, and in the next five years it rises further to 4.8 percentage points above (see Table
3). In other words, the median investment rate rises by about 6.4 percentage points relative to the
world average in countries undergoing saving transitions.
10
The growth rate also displays a significant spike around the time of the transition year
(Figure 4), with its median value going from 1.5 percent (relative to the world average during the
five years preceding the transition) to 3.9 percent (during the five years thereafter). So saving
transitions are clearly associated with sharp increases in growth rates.
But the striking message that comes out of Figure 4 is that the increase in growth tends to
be temporary. Following the initial spike, the growth rate starts to decline, and ten years or so
into the transition, it is back at the levels that prevailed in pre-transition years. The median
growth rate in years [T+10, T+14] is 1.5 percent, the same as that in years [T-5, T-1] (see Table
3). The conclusion is that on average saving transitions do not seem to produce lasting increases
in growth, even when the rise in saving itself is permanent. Excluding the five countries that
eventually experience a reduction in saving rates—Egypt, Philippines, Portugal, Suriname, and
Syria—does not affect this conclusion.
The case of Pakistan, shown in Figure 5, represents perhaps the paradigmatic case.
Pakistan’s saving rate went through a sustained increased after 1976, going from around 10
percent to above 20 percent. Till about 1982, this was accompanied by a significant increase in
Pakistan’s relative growth performance—a rise of more than 6 percentage points in the growth
rate (relative to the world average). Throughout the 1980s and early 1990s, however, Pakistan’s
relative performance steadily slipped, to the point where the gap in its favor was entirely
eliminated by 1994. The actual growth rates (without the benchmarking), show a similar, if less
marked, cycle.
11
What explains this general pattern of temporary growth spikes?7 Note that our figures say
nothing about the direction of causality between saving and growth, and the language I have used
(“accompanied by,” “correlated with,” etc.) reflects that fact. One hypothesis is that causality
runs from growth to saving, and that what we observe around our transition dates is an increase in
saving resulting from an increase in growth, which in turn results from determinants other than
saving. If there is some hysteresis in saving behavior, arising from habit formation or irreversible
changes in the financial system, a subsequent reduction in growth—arising again from other
determinants—might then leave saving relatively unaffected.
In other words, the pattern that we
observe could be the joint product of hysteresis and of saving being driven by growth.
V.
Growth transitions and saving behavior
One way of getting more insight into this issue is to reverse the exercise and look for
saving patterns in countries that undergo sustained growth transitions. If saving remains high in
such countries well into the transition, our suspicions that growth is the driving force behind
saving would be strengthened.
For this purpose, I have defined a growth transition in a manner analogous to a saving
transition. A growth transition is taken to be a sustained increase in the growth rate of real GNP
by more than 2.5 percentage points. In particular, a country is said to undergo a growth transition
at year T if the three-year moving average of its growth rate over a nine-year period starting at T
7
One explanation, not considered any further, is that we are observing the implications of the Solow growth model
in operation. According to this model, a permanent rise in saving would increase the steady-state capital stock, but
increase the economy’s growth rate only temporarily until a new balanced-growth path (at the previous rate of
growth) is reached. However, the speed of adjustment in the Solow model tends to be too slow to explain the
relatively rapid growth declines we observe in our data. For example, under a typical calibration (carried out in
Romer 1996, 22), the half-life of convergence is around 18 years.
12
exceeds by more than 2.5 percentage points the five-year average of its growth rate prior to T.
Countries where the post-transition growth rate averages less than 4 per cent were excluded from
the analysis. Also excluded, as before, were resource-boom countries.8
The resulting list of countries and transition dates, along with the relevant data, is shown
in Table 4. There are 18 countries in all, many of which have also had saving transitions, although
the dates for the two kinds of transitions do not always coincide. There are also many new
countries, however, such as Bangladesh (1974), Brazil (1966), Ghana (1984), and Thailand
(1986). The median growth rate of income in these 18 countries rises from 1.1 percent prior to
the transition to 7.0 percent and 7.2 percent in the first and second five years of the transition,
respectively (these are actual growth rates, not relative to the world). The growth rate falls off
somewhat eventually (ten years or more after the transition date), even though it remains higher
than the pre-transition rate on average.
Our main interest lies in what happens to the saving rate in these countries experiencing
increased growth. The results in Table 4 are interesting in that respect. Benchmarked against the
world norm, our 18 countries are significant under-performers on the saving front before the
transition begins: their median saving rate is 7.5 percentage points below the world average.
After the growth transition, however, this performance steadily improves. The median saving rate
rises to -3.7, 1.2, and 2.5 percentage points above the world average in the three five-year periods
following the transition year. Notice that saving performance continues to improve even in years
[T+10, T+14], when, as mentioned previously, growth slows down. The cumulative
improvement in median saving (relative to the world) amounts to a striking 10 percent of national
8
I also excluded a few very small, island economies: Cape Verde, Dominica, Solomon Islands, St. Vincent and the
Grenadines.
13
income. The results without benchmarking the saving rate are virtually identical. The conclusion
is clear: growth transitions tend to be followed by significant, and sustained, improvements in
saving performance.9
What the data show, therefore, is an interesting asymmetry between saving and growth
transitions. Significant increases in either saving or growth are generally accompanied by
contemporaneous increases in the other variable. But while growth transitions lead to sustained
increases in saving rates, saving transitions tend to result only in temporary increases in growth.
These findings are in line with the hypothesis that it is mainly growth that drives the time-series
relationship between the two variables.
VI.
Granger tests
The preceding analysis allowed us to visualize the dynamic relationship between growth
and saving over varying time horizons. The standard procedure for examining time precedence
issues is to use some variant of Granger “causality” tests. Such tests are better at picking up
short-run leads and lags than long-term relationships. Nonetheless, it is instructive to check
whether the conclusions reached above are borne out by the evidence from more formal tests of
this type.
Table 5 presents the results of Granger “causality” tests on saving, investment, and growth
(in real GNP) using our sample of countries with saving transitions. Each variable is regressed on
the lagged values of itself and of the other two variables. Results with annual data as well as with
9
Note that the median (and mean) values reported in Table 4 are calculated using the whole sample, including
countries for which observations are not available in certain time periods. However, excluding such countries and
using a consistent set of countries throughout makes no difference to the conclusions in this paragraph and the
previous one.
14
five-year averages are presented. In the latter case, the 1960-94 period is divided into seven subperiods of five years each. Regressions were run on each country individually (using annual data
only), as well as on the entire panel. Bivariate regressions (using pairs among the three variables
at a time) did not yield results that were qualitatively different, so they are not shown here.
The results for specific countries do not reveal clear regularities. The pattern of signs on
the estimated coefficients and their significance suggest that the stories for the individual countries
have their own peculiarities.
However, when the countries are pooled together, the outcome is quite revealing. There
is strong evidence in the pooled data that in the very short run (i.e., using lags of a single year)
growth precedes saving. The estimated coefficient on growth rate in the saving regression is
positive and highly significant when annual data are used. The result continues to hold when we
add country and period dummies to the regression. It also holds when we exclude lagged
investment as a regressor. When we use five-year averages, the evidence that growth Grangercauses saving is weaker: the estimated coefficient on lagged growth is significant only when we
do not include country and period dummies.
As for the reverse relationship, the results indicate, if anything, a negative effect from
saving to subsequent growth. This negative effect is found in regressions using five-year averages
as well as annual data, as long as fixed effects for countries are included in the regression. These
results (as well as those reported in the previous paragraph) continue to hold when the pooled
regressions are run in first differences. Growth Granger-causes saving, while saving (negatively)
Granger-causes growth. Taken at face value, the results suggest that an increase in saving is a
deterrent to growth over the short- to medium-run.
15
With regard to investment, the regressions reveal two-way feedback effects between
saving and investment in the short-run. But we find no statistically significant relationship
between these two when five-year averages are used.
Recapitulation. The Granger-type regressions reinforce the conclusions reached
previously. Putting these results together with the findings discussed earlier, the story that
emerges is one that emphasizes economic growth as the driving force behind the saving transitions
we observe. In the short run, economic growth tends to have a clear positive effect on the saving
rate. Increases in saving per se do not seem to produce a rise in growth, either in the short run or
in the long run. The typical pattern for countries that undergo saving transitions is that their
growth rates eventually return to pre-transition levels.
VII.
Determinants of saving
What are the other determinants of saving besides (past) growth? As mentioned in the
introduction, a number of studies have analyzed this question using panel techniques. Here, I take
a fixed-effects approach, restricting the sample to the group of transition countries. The purpose
is mainly to see whether the variables identified as determinants in the literature show up strongly
in this sample as well. I use as my dependent variable private saving as well as total saving.
The results are shown in Table 6. The main findings can be summarized as follows:
1. Even after other possible determinants are controlled for, lagged income growth exerts a
statistically significant positive effect on the saving rate. This effect operates entirely on
private saving. Lagged growth has no significant effect on public saving (not shown in the
table). The estimated coefficients indicate that an increase in the growth rate of 1 percent
16
raises the saving rate the following year by between 0.2 and 0.3 percentage points of national
income.
2. Public saving exerts a strong positive effect on aggregate saving. An increase in public saving
of 1 percentage point of national income raises total national saving by 0.40-0.74 points.
While public saving does crowd out private saving, the regressions reveal that the crowding
out is far from complete. Indeed, Figure 6 shows that there is a noticeable increase in public
saving in our sample around the time that the transitions begin. All in all, mobilizing public
saving seems to be one of the most potent ways of raising national saving.
3. There is a positive and significant relationship between increases in the external terms of trade
and saving. It is primarily private saving that is affected by the terms of trade.
4. Urbanization exerts a positive and statistically significant on national saving. This relationship
is, once again, entirely due to the effect on private saving.
5. Aid flows from abroad appear to increase national saving. About 50 cents of a dollar of aid
ends up as increased saving (see also Figure 7). The estimated coefficient is highly significant.
6. There is no statistically significant relationship in our sample between the dependency ratio in
the population and the saving rate.
7. As regards financial variables, the stock of private credit appears to exert no effect on saving,
while the estimated coefficient on the real interest rate on deposits in the banking system is
actually negative and statistically significant. Lagging the real deposit rate does not change
this result. As Figure 8 shows, saving transitions are associated with significant reductions in
the real deposit rate.
17
8. There is a negative and significant relationship between the exports-GNP ratio and private
saving. The reason for this is unclear.10
These results largely confirm those in Loayza, Schmidt-Hebbel, and Serven (1998), who
use a global sample and try a variety of estimation techniques. In particular, the findings here on
the positive role of income growth, public saving, and terms of trade growth mirror those in
Loayza et al. Moreover, the negative coefficient on the real interest rate is reported in that paper
as well. So there is little reason to think that our group of 20 countries with saving transitions
behaves qualitatively differently from the larger sample.
However, one respect in which our sample seems distinctive is the significant role played
by workers’ remittances in many of the countries. Seven countries in our sample have received
remittances in excess of one percent of GNP over sustained periods of time: Belize, Egypt,
Jordan, Malta, Pakistan, Portugal, and Sri Lanka. Remittances were particularly large in Jordan,
Egypt, Pakistan, and Portugal. These countries have supplied significant amounts of labor to
booming economies nearby--the oil-rich Gulf states in the case of the first three countries, and
West Germany in the case of Portugal. Since the early 1970s, if BOP and national-income data
are to be believed, remittances have averaged 18 percent of GNP in Jordan, 8 percent in Egypt, 5
percent in Pakistan, and 8 percent in Portugal (Figure 9).11
In most of these countries, the saving transitions and the initial spurt in remittances were
closely synchronized. This is certainly true of Egypt, Jordan, Pakistan, and Sri Lanka, all of which
10
Including the level of real national income as a regressor did not change any of these results. Real income itself
enters with a statistically insignificant coefficient. Remember, however, that the regressions contain country fixed
effects.
11
The source for these data is the World Bank’s World Development Indicators 1998 CD-ROM. Data are
unavailable for Chile, Costa Rica, Lesotho, Mauritius, Singapore, Syria, Taiwan. Some of these countries are
known to have been recipients of significant amounts of remittances as well.
18
benefited from the boom in the oil-producing states during the 1970s. The case of Portugal,
which benefited from the German boom of the 1960s, is analogous. Hence, remittances appear to
have been an important determinant of saving transitions in a sub-sample of our countries.12
VIII.
Country stories
As emphasized before, not all saving transitions lead to high growth in the long run. Only
a small number of our countries have managed to combine increased saving with increased
investment and growth on a sustained basis. How do these virtuous saving-investment-growth
cycles get started? What are the respective roles of external factors, government policies, and
institutional determinants? To answer these questions, I focus in greater detail on a few cases
where such cycles seem to have taken hold.
South Korea
As Figure 10 shows, the saving rate in Korea has increased steadily since the early 1960s,
from around 10 percent in 1960 to more than 35 percent by the late 1980s. But as the figure
makes clear, saving has lagged behind investment until the second half of the 1980s. Our filter
does not pick up a saving transition in Korea until 1984, which is quite late in view of the sharp
pick-up in growth during the 1960s. Applying the same filter to the investment rate, we get an
investment-transition date of 1965—two decades prior to the saving transition. Korea is a prime
12
Introducing the remittances/GNP ratio in the regressions yields a positive coefficient on this term. However, the
estimated coefficient is statistically insignificant, perhaps because the sample size shrinks considerably due to the
lack of data for many of the countries.
19
example of a country where high saving has been largely the product of high growth—itself the
result of an investment boom starting in the early 1960s.
Where did the investment boom come from? In Rodrik (1995), I have argued that the
boom was largely the result of government policies that substantially increased the private
profitability of investment from the early 1960s on. With the inauguration of President Park, who
took power in a military coup in 1961, the investment climate in Korea improved sharply. In
addition to eliminating obstacles to investment, government policy highly subsidized investment.
The chief form of investment subsidy was the extension of credit to large business groups at
negative real interest rates. Korean banks were nationalized after the military coup of 1961, and
consequently the government obtained exclusive control over the allocation of funds in the
economy.
Investment was also subsidized through the socialization of investment risk in selected
sectors. This came about because the government—most notably President Park himself—
provided an implicit guarantee that the state would bail out those entrepreneurs investing in
“desirable” activities if circumstances later threatened the profitability of these investments. The
government played a direct, hands-on role by organizing private entrepreneurs into investments
that they may not have otherwise made. In the words of Amsden (1989, 80-81), "[t]he initiative
to enter new manufacturing branches has come primarily from the public sphere. Ignoring the
1950s... every major shift in industrial diversification in the decades of the 1960s and 1970s was
instigated by the state...."
Finally, public enterprises played a very important role in enhancing the profitability of
private investment. They did so by ensuring that key inputs were available locally for private
producers downstream. The government established many new public enterprises in the 1960s
20
and 1970s, particularly in basic industries characterized by high degree of linkages and scale
economies (Jones and Sakong 1980). Not only did public enterprises account for a large share of
manufacturing output and investment in Korea, their importance actually increased during the
critical take-off years of the 1960s.
It is true that many of the same policies were applied in other countries, with much less
favorable results. The differences in Korea were that: (a) there was much greater consistency,
predictability, and coherence in the application of the investment incentives; (b) the government
bureaucracy exhibited less corruption and more competence; and (c) the educational-attainment
level of the labor force was quite high for a country at Korea’s level of development. These
factors reduced the administrative and rent-seeking costs of the interventions while enhancing
their efficiency consequences.
Taiwan and Singapore
In Taiwan and Singapore, the saving transitions are dated earlier than in Korea (1970 and
1971, respectively), but otherwise the story is quite similar. In both cases, investment booms that
took place in the 1960s led growth. Government policies that encouraged and subsidized private
investment played a critical role in these booms. In both countries, the saving rate eventually
overtook the investment rate, but not until the 1980s.
In Taiwan, an important turning point was the Nineteen-Point Reform Program instituted
in 1960. This contained a wide range of subsidies for investment, and signaled a major shift in
government attitudes towards investment. The most important direct subsidies in Taiwan came in
the form of tax incentives. The Statute for Encouragement of Investment (enacted in 1960 in
conjunction with the Nineteen-Point Reform Program) entailed a significant expansion of the
prevailing tax credit system for investment. These incentives were further expanded in 1965, at
21
which time specified manufacturing sectors (in basic metals, electrical machinery and electronics,
machinery, transportation equipment, chemical fertilizers, petrochemicals, and natural gas pipe)
were given complete exemption from import duties on plant equipment. As in Korea, it was
common for the state to establish new plants in upstream industries. These were then either
handed over to selected private entrepreneurs (as in the case of glass, plastics, steel, and cement)
or run as public enterprises (Wade 1990, 78).
In Singapore, investment was heavily subsidized as well. According to Young (1992, 21),
there was a dramatic expansion in 1968 of the Singaporean government’s involvement in
investment activities, with the Development Bank of Singapore (DBS) increasing its financial
commitments eight-fold over a two-and-a-half year period. A substantial share of the economy
came to be owned, directly or indirectly, by the Singaporean government. The year 1968 also
marks the beginning of an investment boom, ahead of the saving transition in 1971 (Figure 11).
These large investments were funded in part by surpluses on the current account of the
government budget and by borrowing from the Central Provident Fund (Young 1992). But
foreign saving also played an important role in closing the investment-saving gap until the early
1980s.
Unlike Korea and Taiwan, Singapore focused its incentives heavily on foreign investors.
The year 1968 marked a turning point with regard to foreign investment as well (Young 1992).
Labor legislation passed that year significantly strengthened management’s bargaining power over
issues of pay, benefits, and other working conditions. A wide range of tax incentives for investors
were phased in or expanded after 1967, with exemptions from profits taxes taking the lead. While
these incentives in principle did not discriminate between domestic and foreign investors, “because
22
they are usually linked to sizable investments involving advanced technologies in new (targeted)
industries, the overwhelming majority of participants are foreign” (Young 1992, 23).
Young emphasizes that Singapore’s Pioneer Industries Ordinance, the source of the most
significant tax holidays provided to foreign investors, dates from 1959. He notes that the
Ordinance failed to attract much foreign investment “until after 1968, when the Singaporean
government began to expand its own financial participation in manufacturing and other sectors”
(1992, 24). He suggests that after that date the government subsidized foreign investment beyond
the tax incentives themselves, at quite exorbitant rates.
Another distinguishing factor in Singapore is the role played by the Central Provident
Fund (CPF). Established in 1955 as a compulsory, individualized social security account, the CPF
has played an important role in mobilizing saving in Singapore. The contribution rates to the CPF
were initially set at 5 percent of salary (by employee and employer alike). In 1968, the rates were
raised to 6.5 percent, and since then they have been steadily raised until the mid-1980s, reaching
25 percent in 1984 (Lim et al. 1993, 118). The assets of the CPF are invested predominantly in
government securities. The CPF must be considered an important factor behind the rise in the
national saving rate in Singapore. The accumulation of CPF balances has accounted for more
than 20 percent of gross domestic saving since 1971 (Lim et al. 1993, Table 3-4).
The CPF has enabled an investment rate that would reach almost 50 percent by the early
1980s—higher than in any other East Asian country. At the same time, the root cause of the
increase in investment must be sought not in the CPF itself, but in other government policies
which, as noted above, resulted in higher public investment levels as well as higher private returns
to investment in Singapore.
Mauritius
23
Mauritius has experienced two spurts in saving, one in 1971 and another in 1984. The
first of these, arising from a sugar boom, was short-lived and collapsed in 1974 along with sugar
prices. The second one (which is the only one picked up by our filter) has survived so far, with
the saving rate hovering around 26 percent (Figure 12).
Even though the first saving boom was temporary, it played a crucial role in Mauritius’
development because it set the stage for a significant jump in investment, a jump which was to
prove more durable than the saving boom itself. The increase in the island’s saving rate during
the early 1970s resulted primarily from an improvement in the island’s terms of trade. World
sugar prices began to rise in 1971, and the prices received by sugar producers more than tripled
between 1972 and 1975 (Wellisz and Saw 1993, 235). The government had established an
export-processing zone (EPZ) in 1970, shortly before the sugar boom got started. Enterprises
operating under the EPZ—which entailed no particular geographic designation—were provided
tariff-free access to imports of machinery and inputs, free repatriation of profits, a ten-year tax
holiday (for foreign investors), and an implicit guarantee of wage moderation. The EPZ enabled
saving to be channeled into productive, export-oriented investments, in turn setting the stage for
an export boom in garments to European markets, where Mauritians could export quota-free.
Without the EPZ, there is a good chance that these investments would not have taken place, or
else would have been wasted in high-cost, inward-looking projects. In 1971, there were a mere
nine enterprises in the EPZ, employing 644 people. Five years later, there were 85 EPZ
enterprises, employing 17,171 workers, and making up 13 percent of the island’s exports (Wellisz
and Saw 1993, p. 241). The economy’s investment rate rose from below 15 percent in the late
1960s to 30 percent a decade later.
By 1976, the trend in world sugar prices was reversed, and domestic saving began to fall.
24
However, domestic investment remained high and the government maintained expansionary fiscal
policies. This resulted in increasing resort to foreign borrowing and a deterioration of the balance
of payments. A tripling of the country’s external debt between 1976 and 1979 brought the
country to the verge of bankruptcy and forced the government to turn to the IMF and the World
Bank for assistance (World Bank 1989, 4). Hit by cyclones and floods which caused extensive
damage to crops and housing, the economy suffered a reduction in real income of more than 10
percent in 1980 (Wellisz and Saw, 245). The saving rate fell to its lowest level in two decades.
During the early 1980s, Mauritius followed a classic adjustment program that eventually
produced a return to high growth rates after 1984. The currency was devalued and there was a
significant reduction in the fiscal deficit. The improvement in public saving around the year of the
saving transition (1984) amounted to 6.6 percent of national income. There was also a range of
structural reforms: imports were liberalized, price controls on most commodities were removed,
and the tax system was reformed. At the same time, growing protectionism in the advanced
industrial countries in textiles and clothing led major exporters (notably Hong Kong
entrepreneurs) to look for production sites not yet subject to quantitative restrictions (Wellisz and
Saw 1993, 249). These developments resulted in a second wave of investments in the EPZ and an
export-led economic boom. The rise in saving after 1984 appears to be a clear case of growth-led
saving.
Following 1987, a number of financial-sector reforms enhanced the operation of the
financial sector. First, interest rates were liberalized in July 1988 by abolishing the minimum
deposit rate and the maximum loan rate guideline. Second, in 1987 two Bank of Mauritius saving
bonds were issued to non-financial institutions. Third, Mauritius Housing Corporation tax-free
saving bonds were introduced. The latter allows individuals to save for a down payment for a
25
house. Finally, the development of the stock market has made significant progress (World Bank
1989, 70-74). It is possible that these reforms have contributed to keeping the saving rate up.
Chile13
National saving behavior in Chile has been extremely volatile (Figure 13). The saving rate
during the late 1960s stood at around 15 percent. This rate then declined to 5.6 percent in 1973
and immediately peaked in 1974 at 24.3 percent. During the latter part of the 1970s the saving
rate eventually leveled out at around 17 percent while investment steadily rose to levels exceeding
25 percent. At the beginning of the 1980s, the saving rate once again plummeted to low single
digits. Then in 1985 Chile experienced a sustained saving transition. The average rate over the
period from 1989 through 1995 has been above 25 percent
As in the other cases, income growth has played a leading role in raising the level of
saving in Chile. The saving transition in 1985 is associated with a turnaround in real income
growth from -1.4 percent per annum to 7.8 percent (these figures are averages over five years
prior to and following 1984). The correlation coefficient between growth and the saving rate
over the entire period is 0.55. Chile’s case however, also provides some evidence that structural
economic reforms may have had a positive if lagged effect on increasing the saving rate. These
include financial sector liberalization, social security reform, and the stabilization policy.
During the 1950s and 1960s Chile followed isolationist policies which created a highly
distorted economy. The Allende government that took office in 1970 followed a socialist
program that included policies to nationalize industry, banking and mining. This initially created
an economic boom which however “quickly degenerated into an explosion of inflation, shortages,
black markets, and huge losses in the state enterprises.” (Bosworth et al 1994, 5). What resulted
26
was a military coup in 1973, led by General Pinochet. The new government implemented a series
of radical economic reforms that would extend into the next decade. The budget deficit was
reduced from 25 percent of GDP in 1973 to 1 percent in 1975 (Bosworth et al 1994, 5). This
was combined with restrictive monetary policy, trade and exchange rate liberalization and a
comprehensive privatization plan. The reforms included extensive financial sector liberalization
without adequate provision for prudential regulation of financial markets. The austerity program
in combination with several external shocks resulted in the 1975 recession. To control inflation
the currency was anchored to the U.S. dollar after 1978.
A strong recovery soon followed from 1976 to 1982. A domestic investment boom was
financed mainly by foreign capital inflows, which began to flow freely into the domestic economy
with the removal of capital controls. However, saving remained depressed throughout the late
1970s for a number of reasons: the volatility of the economy in the 1970s created uncertainty
about future earnings; consumer saving behavior did not radically change in response to the
deregulation of the financial system and interest rates; and the large inflow of foreign capital
between 1979 and 1981 pushed up asset prices generating a consumption boom through the
wealth effect (Marfan and Bosworth 1994, 181-187).
The increasing overvaluation of the currency and the growing current account deficit were
the weak points of the system. In 1982, foreign commercial banks cut off credit to Chile and the
economy spiraled into a deep recession. In the words of Bosworth, Dornbusch and Laban (1994,
8):
The major economic crisis was partly a result of several external shocks—the drying up of
voluntary external financing; the deterioration of the terms of trade; and the major increase
in foreign interest rates. But the effect of external developments was exacerbated by the
13
This account draws extensively on a note prepared by Chad Steinberg.
27
mishandling of several domestic policies: the fixed exchange rate policy coupled with
mandatory indexation of wages at 100 percent of past inflation; the sweeping opening of
the capital account at the time of the boom; the radical liberalization of the domestic
financial markets without the provision of proper regulations and controls; and the belief
in the “automatic adjustment” mechanism, by which the market was expected to produce a
quick adjustment to the new recessionary conditions without interference by the
authorities.
The bankruptcy of the Chilean financial sector required a bail-out that eventually cost the public
sector more than 30 percent of GDP. The crisis of 1982 caused the saving rate to fully collapse.
According to Marfan and Bosworth (1994, 192-1933) this “was due exclusively to reduced saving
in the public sector, which was faced with the costs of rescuing the financial sector, a decline in
the price of copper, the effects of the recession on tax collections, and the costs of the pension
reform.”
In the decade that followed, the Chilean economy made a remarkable recovery.
Government policies in this period included a large currency devaluation, tight fiscal policy, a
second round of privatization, and social security reform. In addition, the Central Bank was given
a greater supervisory role in rebuilding the financial system. While the rise in saving after 1985
has all the hallmarks of a growth-led recovery, the magnitude and strength of the recovery are
arguably attributable to structural changes in the economy. Some of the key changes are briefly
listed below.
Private sector incentives. Marfan and Bosworth (1994) emphasize the importance of the
government’s efforts to increase private saving by reducing the private debt burden and reforming
the tax system in 1984. The over-indebtedness of the private sector was dealt with by writing-off
or rescheduling debts of troubled companies. These programs were
successful in inducing firms to contribute additional resources to debt reduction. The
efforts made by productive firms to reduce their debt may have been a significant factor in
the rise of private saving during this period. (Marfan and Bosworth 1994, 193.)
28
Second, the tax reform in 1984 lowered both income and corporate tax rates. This may have
increased incentives for corporations to retain earnings.
Social security reforms. The Chilean effort in the early 1980s to privatize the social
security system has received worldwide attention. The new system is based on a defined
contribution plan with a mandatory contribution equal to 10 percent of wages. Workers have
individual retirement accounts managed by private pension funds that are subject to government
regulation and oversight. Nearly a quarter of private saving is in pension funds.
The Copper Stabilization Fund. The CSF was designed to help avoid Dutch-disease type
crises resulting from cycles in copper prices. The law setting up the CSF forces the public sector
to save part of its income from copper sales when the market price of copper exceeds some
reference price. With the dramatic rise of copper prices in the late 1980s, this law has had a
positive effect on public saving.
Stability and confidence. There were no major changes in financial conditions immediately
before and after the saving transition in 1985. However, the stability of the Chilean
macroeconomy has considerably improved, in comparison with the high inflation rates of the
1970s and the crisis years of the early 1980s. Confidence in the economy and in the government’s
economic management has increased greatly. Transition to democracy has gone smoothly, with
few changes in the underlying rules of the game in economic policy. These factors may have
helped sustain the new higher levels of saving.
Hence, the strength of the new financial system, the commitment of successive
governments to stability, and reforms in the social security system have probably all played a role
in the recovery of saving since 1985. While income growth is the most immediate stimulus behind
29
the saving increase, the structural changes made in the Chilean economy over the past two
decades have likely affected the magnitude and the length of the saving transition. At the same
time, it is worth pointing out that the Chilean saving rate still remains substantially below the level
prevailing in East Asia.
IX.
Concluding remarks
The central message of this paper is a negative one: focusing on saving performance does
not seem to be a profitable strategy for understanding what makes for successful economic
performance. Increases in saving appear to be the outcome of economic growth, not a
fundamental determinant of it. The evidence indicates that countries that undergo saving
transitions do not necessarily experience sustained increases in their growth rates. In fact, the
typical pattern in our sample is that growth rates—benchmarked against world norms—return to
their pre-transition levels within a decade. Countries that have experienced saving transitions due
to rapid increases in worker remittances exemplify this point. Very few of these countries have
experienced increases in their long-run growth rates. By contrast, countries that undergo growth
transitions—due to improved terms of trade, increased domestic investment, and other reasons—
do end up with permanently higher saving rates.
The policy implication is clear: policies geared towards raising domestic saving do not
deserve priority when designing economic programs. As our case studies demonstrate, the key to
generating virtuous cycles of high growth-high investment-high saving is to kindle the animal
spirits of entrepreneurs by increasing the expected profitability of their activities. Enhancing
production and investment incentives seem preferable to working on saving incentives.
30
In the East Asian countries (South Korea, Singapore, and Taiwan), the virtuous cycles
were started by employing a wide variety of investment subsidies and by undertaking public
investments that increased the return to private investments. Implemented in a context of overall
macroeconomic stability, good governance, and superior human resources, these interventions
enhanced enterprise profits, crowded in private investment, and led to a steady increase in
corporate and household saving. In Mauritius, a temporary saving boom generated by a terms-oftrade windfall was put to good use by setting up an export-processing zone unencumbered by the
restrictions placed on entrepreneurship in the rest of the economy. The result was an investment
boom that proved more durable than the saving boom and set the stage for export-oriented
growth. In Chile, the rise in saving after 1985 was the result of economic recovery following the
crisis of 1982-83 and the restoration of economic stability after a long period of macroeconomic
instability.
In all of these cases, policies and institutions having a direct bearing on saving
performance did make a difference. It is unlikely that the saving rate in Singapore would have
reached so high in the absence of the Central Provident Fund, and therefore unlikely that the
investment rate would have climbed to 50 percent by the early 1980s. Similarly, it is plausible to
think that financial policies and institutions in Chile boosted the saving rate beyond where it would
have otherwise gone, even in the presence of a recovery of a similar magnitude. But it would be
quite difficult to argue in these and other cases we looked at that it was saving per se that acted as
the trigger for economic growth.
31
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University Press, 1989.
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Macroeconomic Analysis Using A Panel of Countries,” December 1997.
Bosworth, Barry, Rudi Dornbusch, and Raul Laban, eds, The Chilean Economy: Policy Lessons
and Challenges, Washington, D.C.: Brookings Institution, 1994.
Carroll, Christopher, and David Weil, “Saving and Growth: A Reinterpretation,” NBER
Discussion Paper No. 4470, September 1993.
Easterly, William, “The Ghost of Financing Gap,” unpublished paper, World Bank, July 1997.
Edwards, Sebastian, “Why Are Latin America’s Saving Rates So Low?” Journal of Development
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Gavin, Michael, Ricardo Hausmann, and Ernesto Talvi, “Saving Behavior in Latin America:
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Giovannini, Alberto, “Saving and the Rate of Interest in LDCs,” Journal of Development
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Harrigan, Frank, “Saving Transitions in Southeast Asia,” Asian Development Bank, July 1996.
Hayashi, Fumio, “Why Is Japan’s Saving Rate So Apparently High?” in S. Fischer, ed., NBER
Macroeconomics Annual, Cambridge, MA, MIT Press, 1986.
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Lim. Linda, Pang Eng Fong, and Ronald Findlay, “Singapore,” in Ronald Findlay and Stanislaw
Wellisz, eds, Five Small Open Economies, Oxford, New York, Toronto and Melbourne: Oxford
University Press, 1993.
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World?” World Bank, January1998.
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Lewis, W.A., “Economic Development with Unlimited Supplies of Labor,” The Manchester
School 22, May 1954.
Marfan, Manuel and Barry Bosworth. “Saving, Investment, and Economic Growth” in Barry
Bosworth, Rudi Dornbusch, and Raul Laban, eds., The Chilean Economy: Policy Lessons and
Challenges, Washington, D.C.: Brookings Institution, 1994.
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Romer, David, Advanced Macroeconomics, New York, McGraw-Hill, 1996.
Wade, Robert, 1990, Governing the Market: Economic Theory and the Role of Government in
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Wellisz, Stanislaw and Philippe Lam Shin Saw, “Mauritius” in Ronald Findlay and Stanislaw
Wellisz, eds, Five Small Open Economies, Oxford, New York, Toronto and Melbourne: Oxford
University Press, 1993.
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1989.
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Cambridge, MA, MIT Press, 1992.
Table 1
Correlates of economic performance
Low Growth2
1970-84 1985-95
Medium Growth
1970-84 1985-95
High Growth
1970-84 1985-95
Initial conditions
GDP per capita in initial year3
Human capital4
1,697
2.2
2,185
3.3
2,266
3.2
2,188
3.8
1,776
3.5
2,734
5.4
Macro conditions
Saving5
Investment5
Inflation rate per year (median)
17.8
19.0
11.0
16.5
19.4
14.1
18.5
22.1
10.9
19.2
21.1
11.1
26.0
27.4
11.3
31.4
31.9
7.8
Fiscal conditions
Fiscal balances5
Government expenditure5
Government revenue5
-5.7
19.9
14.2
-5.6
25.0
19.4
-4.2
19.6
15.4
-3.3
20.0
16.7
-2.0
19.5
17.6
-2.4
18.9
16.5
International
Net private capital flows6
Balance on current account5
Exports5
Imports5
20.2
-1.0
11.3
12.2
11.8
-2.6
17.2
17.7
12.9
-3.7
14.9
17.4
19.9
-1.4
17.2
18.1
66.9
-1.9
18.2
19.5
68.3
0.3
33.0
32.4
Source: IMF (1997), Table 19.
Notes:
1
Excludes major oil exporting countries, Cyprus, and Malta.
2
Low growth is defined as per capita real income growth of less than one-half of 1 percent a year,
which is roughly the mean growth rate minus one-half of the standard deviation of growth in the
sample for the specified period. Correspondingly, high growth refers to rates above the mean plus
one-half of the standard deviation (2.9 percent).
3
Group average in U.S. dollar terms, using purchasing power parity weights.
4
Average schooling years in population aged 15 and over. See Robert J. Barro and Jong-Wha
Lee, "International Measures of Schooling Years and Schooling Quality," American Economic
Review, Papers and Proceedings, Vol. 86 (May 1996), pp. 218-23.
5
In percent of GDP.
6
In percent of total private capital flow to developing countries. Excludes Asian newly
industrialized economies.
Page 1
Table 2
Saving transitions using different filters
Country
Belize
Chile
China
Costa Rica
Egypt, Arab Rep.
Jordan
Korea, Republic of
Lesotho
Malta
Mauritius
Pakistan
Panama
Paraguay
Philippines
Portugal
Singapore
Sri Lanka
Suriname
Syrian Arab Rep.
Taiwan, China
Barbados
Dominican Republic
Gambia, The
Kiribati
Malawi
Mali
Mauritania
Mozambique, Rep. of
Seychelles
St. Lucia
Thailand
Uganda
Burkina Faso
Cameroon
Hong Kong
Malaysia
Tunisia
Turkey
Morocco
total no. of transitions
Notes: See text.
transition year
x=5%, n=6
x=5%, n=4 x=7.5%, n=4
(1)
(2)
(3)
1985
1985
1985
1985
1985
1986
1970
1970
1983
1983
1974
1974
1972
1972
1973
1984
1984
1985
1977
1977
1977
1975
1975
1984 1971, 1984
1984
1976
1976
1968
1968
1972
1972
1972
1972
1965
1965
1971
1971
1972
1976
1976
1972 1972, 1986
1972, 1986
1973
1973
1973
1970
1970
1979
1978
1973
1987
1987
1984
1984
1972
1972
1986
1987
1986
1986
1984
1985
1985
1987
1988
x=4%, n=6
(4)
1985
1985
1970
1983
1974
1972
1965, 1975
1977
1975
1984
1976
1966
1972
1972
1965
1970
1976
1972
1973
1970
1973
1965, 1986
1984
1976
1971
1973
1970
1984
1969, 1984
20
34
16
33
Table 3
Contours of saving transitions (percent)
transition
Country
year
Belize
1985
Chile
1985
China
1970
Costa Rica
1983
Egypt
1974
Jordan
1972
South Korea
1984
Lesotho
1977
Malta
1975
Mauritius
1984
Pakistan
1976
Panama
1968
Paraguay
1972
Philippines
1972
Portugal
1965
Singapore
1971
Sri Lanka
1976
Suriname
1972
Syria
1973
Taiwan
1970
Median
Mean
savings (GNS/GNDI)
[T-5,T-1]
[T,T+4]
[T+5,T+9]
11.5
7.8
22.6
13.6
11.7
10.2
24.7
8.5
19.5
14.5
10.4
15.5
11.7
20.0
20.3
17.4
11.9
20.2
12.2
22.4
23.5
18.0
29.1
20.9
18.6
18.1
33.2
22.3
26.6
24.6
17.7
22.8
18.0
26.0
25.6
25.3
17.0
40.6
23.2
30.4
14.1
15.3
23.4
24.1
investment (relative to world average)
growth (relative to world average)
[T+10,T+14]
[T-5,T-1]
[T,T+4]
[T+5,T+9]
24.8
25.4
32.6
22.2
17.8
24.7
35.8
22.2
27.8
26.8
22.6
22.8
21.4
26.9
28.6
33.6
19.6
29.3
22.7
31.9
25.8
34.6
23.1
12.2
17.0
35.0
32.8
25.6
24.9
21.6
21.5
18.8
20.0
20.9
42.3
18.2
11.0
14.1
32.0
-2.0
-5.3
0.7
3.2
-8.9
-7.8
7.6
-11.6
0.0
-1.4
-8.6
-1.8
-5.4
-0.3
2.4
6.0
-6.8
4.8
-6.1
2.3
1.0
2.0
6.3
4.7
3.1
-6.3
9.1
-8.6
-2.7
3.5
-8.5
6.7
-2.3
3.0
1.9
19.2
-3.4
13.7
-0.9
6.9
6.7
5.9
8.0
4.8
4.7
0.7
14.6
-3.2
0.8
7.5
-7.2
7.8
3.9
5.1
4.2
17.3
2.4
3.3
-2.8
5.8
5.8
10.0
5.9
2.6
0.2
14.5
5.1
3.6
9.8
-4.9
5.3
1.4
0.3
1.5
24.6
-0.1
-4.1
-0.1
3.3
25.1
26.0
21.6
23.8
-1.6
-2.0
2.5
2.4
4.8
4.5
3.3
4.5
Note: T is the first year of transition for each country.
[T+10,T+14]
[T-5,T-1]
[T,T+4]
0.4
-3.5
2.6
-4.0
-0.7
4.5
4.7
4.1
2.3
4.4
[T+5,T+9] [T+10,T+14]
2.9
4.0
1.7
2.2
5.1
3.0
8.7
2.8
-2.0
-1.0
3.1
-0.6
-0.7
1.5
6.2
-1.1
5.5
4.6
4.5
6.9
1.8
8.0
4.4
3.3
0.1
2.3
1.6
0.9
4.6
1.0
1.9
3.9
4.8
4.4
-0.8
1.2
3.0
4.7
-2.0
7.3
1.3
2.0
2.9
3.1
-0.6
3.6
5.2
-2.6
3.7
6.8
1.7
2.6
0.3
5.7
0.7
1.5
0.8
1.4
4.6
-2.8
-3.9
-2.0
5.4
0.2
5.3
-3.4
5.1
1.5
1.5
3.9
3.4
2.9
2.7
1.5
1.6
Table 4
Contours of growth transitions (percent)
transition
Country
year
Bangladesh
1974
Brazil
1966
Cameroon
1976
Chile
1984
China
1977
Costa Rica
1983
Dominican Republic1969
Ghana
1984
Lesotho
1969
Mali
1985
Malta
1966
Mauritius
1983
Pakistan
1976
Paraguay
1972
Philippines
1986
Seychelles
1985
Syrian Arab Rep. 1969
Thailand
Median
Mean
1986
growth
savings (relative to world average)
investment (relative to world average)
[T-5,T-1]
[T,T+4]
[T+5,T+9]
[T+10,T+14]
[T-5,T-1]
[T,T+4]
[T+5,T+9]
[T+10,T+14]
[T-5,T-1]
[T,T+4]
-1.9
4.2
3.6
-1.1
3.0
-1.1
2.0
-3.1
6.4
-2.6
0.8
0.9
3.4
4.6
-1.8
-0.7
1.3
5.0
4.6
8.0
7.2
6.8
8.1
5.0
12.3
5.2
12.0
5.8
8.7
6.3
7.7
6.9
5.2
5.6
7.8
10.0
4.8
9.8
9.3
8.0
10.6
5.2
4.7
4.3
11.3
1.2
9.3
6.1
6.7
11.0
3.1
5.3
11.3
7.8
3.9
6.1
-3.2
5.7
7.8
4.6
3.4
3.9
3.0
7.1
10.5
4.0
4.6
-0.6
-14.4
1.0
-12.4
-8.4
7.4
-6.0
-12.4
-14.3
-9.8
-1.5
1.2
6.9
17.1
3.5
-3.7
-9.4
-8.8
-1.2
-1.5
8.3
4.9
0.8
1.2
2.9
1.8
16.6
-9.0
-2.0
-1.8
6.8
17.7
4.4
-1.4
-7.6
4.7
-13.7
-2.2
-2.9
-4.5
5.5
3.2
-5.0
-19.4
-8.6
-1.5
0.7
-8.6
-5.4
1.6
4.4
-7.7
6.2
-15.4
-0.9
2.6
-0.3
9.4
4.7
-2.4
-12.0
-11.3
-2.9
3.3
0.9
-8.5
-2.3
-2.0
1.9
-6.8
11.5
-11.1
1.1
4.8
5.8
13.2
4.8
-1.6
-8.3
-11.8
-1.3
-1.7
7.6
-7.2
3.9
-0.1
0.0
1.1
20.4
-9.5
-1.3
1.0
5.8
14.0
5.9
-1.2
-6.8
-6.2
-11.9
4.9
-4.5
-11.0
-7.5
3.4
3.2
-8.0
6.0
-17.4
-1.1
-6.0
-5.1
13.7
2.8
-5.9
-11.3
-13.1
-6.7
7.5
4.1
-3.6
-3.8
0.8
12.8
-5.7
11.0
1.1
1.3
7.0
7.4
7.2
7.2
4.6
4.4
-7.5
-5.0
-3.7
-1.5
1.2
1.6
2.5
2.3
-2.9
-3.4
-1.4
-1.7
0.5
1.1
-1.2
0.2
Note: T is the first year of transition for each country.
5.3
5.9
8.0
2.7
1.1
2.4
[T+5,T+9] [T+10,T+14]
-2.5
9.1
-4.9
1.4
-2.6
Table 4
Table 5
Granger "causality" tests: saving, investment, and growth
growth preceded by:
savings
investment
Full sample, annual data
no dummies
w/country dummies
w/country and period dummies
-***
-**
Full sample, 5-year averages
no dummies
w/country dummies
w/country and period dummies
-*
-*
investment preceded by:
savings
growth
+*
+*
+*
saving preceded by:
growth
investment
+*
+*
+*
+**
+**
+***
+**
+**
Countries, annual data
Belize
Chile
+***
+***
-**
+**
-**
-*
+**
+***
China
Costa Rica
Egypt
Jordan
-**
South Korea
Lesotho
Malta
Mauritius
-***
-**
+**
+*
+**
+*
-**
-**
+*
+***
+*
+**
-*
Pakistan
Panama
-*
+*
-**
Paraguay
+**
Philippines
+***
-*
Portugal
-***
Singapore
+***
Sri Lanka
Suriname
Syria
Taiwan
-***
+***
-***
+**
+**
+*
Note: Each variable is regressed on the lagged annual values of itself and the other two
variables. Asterisks denote levels of statistical significance: * 99 percent;
** 95 percent; *** 90 percent. Blanks denote estimated coefficients that are not
statistically significant.
Table 6
Panel (within) regressions on determinants of saving in countries with saving transitions
Dependent variable
gross national savings/GNDI (gnsgndi)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
income growth-1
0.20* 0.26* 0.27* 0.31* 0.27* 0.26* 0.32* 0.27*
0.20* 0.27*
(0.05) (0.05) (0.05) (0.06) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
public savings/GNDI 0.70* 0.62* 0.61* 0.40* 0.59* 0.60* 0.51* 0.74* -0.29* -0.37*
(0.08) (0.08) (0.08) (0.13) (0.09) (0.08) (0.11) (0.09) (0.08) (0.09)
terms of trade growth
0.09* 0.08* 0.06** 0.08* 0.08* 0.02 0.09*
0.09*
(0.03) (0.03) (0.03) (0.03) (0.03) (0.04) (0.03)
(0.03)
urbanization
0.29* 0.35* 0.31* 0.30* 0.18 0.32*
(0.11) (0.10) (0.11) (0.11) (0.14) (0.11)
aid/GNP
0.54*
(0.15)
dependency ratio
0.15
(0.22)
private credit/GNP
-0.03
(0.03)
real deposit rate
-0.10**
(0.04)
exports/GNP
-0.11*
(0.03)
N
R2
438
0.27
350
0.29
350
0.31
287
0.32
350
0.31
350
0.31
203
0.47
348
0.33
438
0.18
350
0.22
private savings/GNDI (prsgndi)
(11)
(12)
(13)
(14)
0.27* 0.32* 0.27* 0.27*
(0.05) (0.06) (0.05) (0.05)
-0.39* -0.60* -0.40* -0.40*
(0.08) (0.13) (0.09) (0.09)
0.08* 0.06** 0.08* 0.08*
(0.03) (0.03) (0.03) (0.03)
0.28* 0.34* 0.30* 0.29*
(0.11) (0.10) (0.11) (0.11)
0.56*
(0.15)
0.14
(0.22)
-0.02
(0.03)
(15)
0.31*
(0.05)
-0.49*
(0.11)
0.01
(0.04)
0.18
(0.14)
(16)
0.27*
(0.05)
-0.25*
(0.09)
0.09*
(0.03)
0.31*
(0.11)
-0.10**
(0.04)
-0.11*
(0.03)
350
0.24
287
0.28
Country and year dummies included (coefficients not shown). Levels of statistical significance: *99%, **95%, ***90%.
350
0.24
350
0.24
203
0.46
348
0.27
Figure 1
Saving rates in South Korea and Botswana
0.6
0.5
0.4
0.3
0.2
0.1
Botswana
Korea, Republic of
94
92
90
88
86
84
82
80
78
76
74
72
70
68
66
64
62
60
0
Figure 2 Chart 1
Saving transitions
28%
26%
24%
22%
20%
18%
16%
14%
12%
10%
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
T Years S/Y median
S/Y mean
10
12
14
16
18
20
Figure 3 Chart 1
Saving transitions and investment
28%
8%
26%
6%
24%
4%
22%
20%
2%
18%
0%
16%
-2%
14%
-4%
12%
10%
-6%
-14 -12 -10
-8
-6
-4
-2
0
2
S Median
4
6
8
I Median
10
12
14
16
18
20
Figure 4 Chart 2
Saving transitions and growth
0.06
0.32
0.05
0.27
0.04
0.03
0.22
0.02
0.17
0.01
0
0.12
-0.01
-0.02
0.07
-14 -12 -10
-8
-6
-4
-2
0
2
4
6
8
10
T Years
S Median
Growth Median
Page 1
12
14
16
18
20
Figure 5
Saving and growth in Pakistan
0.3
0.07
0.06
0.25
0.05
0.04
0.15
0.02
0.01
0.1
0
-0.01
0.05
-0.02
savings rate
growth (relative to world, 3-yr avg.)
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
73
-0.03
19
71
0
growth
0.03
19
69
savings rate
0.2
Figure 6 Chart 1
Saving transitions and public savings
0.32
0.06
0.05
0.27
0.04
0.22
0.03
0.17
0.02
0.12
0.01
0.07
0
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
T Years
S Median
PS Median
Page 1
8
10
12
14
16
18
20
Figure 7 Chart 1
Saving transitions and aid
0.32
0.06
0.05
0.27
0.04
0.22
0.03
0.17
0.02
0.12
0.01
0.07
0
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
T Years
S Median
Aid Median
Page 1
8
10
12
14
16
18
20
Figure 8 Chart 1
Saving transitions and real deposit interest rate
0.32
0.2
0.15
0.27
0.1
0.22
0.05
0
0.17
-0.05
0.12
-0.1
0.07
-0.15
-14 -12 -10
-8
-6
-4
-2
0
2
4
6
8
10
T Years
S Median
DepRate Median
Page 1
12
14
16
18
20
Figure 9
Wokers' remittances as a share of GNP
0.25
0.2
0.15
0.1
0.05
Belize
Egypt, Arab Rep.
Jordan
Malta
Pakistan
Portugal
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
0
Sri Lanka
Figure 10
Korea: saving and investment
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
60
62
64
66
68
70
72
74
76
GDI/GNDI
78
80
82
84
GNS/GNDI
86
88
90
92
94
Figure 11
Singapore: saving and investment
0.6
0.5
0.4
0.3
0.2
0.1
GDI/GNDI
GNS/GNDI
93
91
89
87
85
83
81
79
77
75
73
71
69
67
65
0
Figure 12
Mauritius: saving and investment
0.35
0.3
0.25
0.2
0.15
0.1
0.05
GDI/GNDI
GNS/GNDI
93
91
89
87
85
83
81
79
77
75
73
71
69
67
65
0
Figure 13
Chile: saving and investment
0.35
0.3
0.25
0.2
0.15
0.1
0.05
GDI/GNDI
GNS/GNDI
95
93
91
89
87
85
83
81
79
77
75
73
71
69
67
65
0