Explaining differences in the domestic savings ratio across countries: A panel data study

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis paper seeks to analyse the major determinants of differences in the domestic savings ratio between countries using panel data for 62 countries over the period . A basic distinction is made between the determinants of the capacity to save and the willingness to save. The capacity to save depends primarily on the level of per capita income (but non-linearly) and the growth of income (the life cycle hypothesis), and the empirics strongly support these hypotheses. The willingness to save is assumed to depend on financial variables such as the rate of interest, the level of financial deepening and inflation. We find no support for a positive interest rate effect, but strong support for the level of financial deepening measured by the ratio of quasi-liquid liabilities to GDP. Inflation exerts a mild positive effect on saving but soon turns negative. Total saving also depends on government saving, and a surprisingly strong negative relation is found between the ratio of tax revenue to GDP and the domestic savings ratio. JEL Classification: E21Keywords: Domestic savings, income, financial variables, tax. Address for correspondence: Professor A. P. Thirlwall, Department of Economics, University of Kent at Canterbury, CT2 7NP, UK; email: A.P.Thirlwall@ukc.ac.uk. 1 EXPLAINING DIFFERENCES IN THE DOMESTIC SAVINGS RATIO ACROSS COUNTRIES: A PANEL DATA STUDY IntroductionAcross the world, there are huge differences between countries in the ratio of domestic savings to national income. In a sample of 62 countries over the period 1967 to 1995, shown in Table 1 (taken from the World Development Indicators, 1998), the mean domestic savings ratio is 17.8 percent; the standard deviation is 8.9, and the range is from 1.6 percent in Rwanda to 41.4 percent in Saudi Arabia. The countries taken were dictated by the consistency of data over the chosen time period. In this paper, an attempt is made to account for these differences in country savings performance, distinguishing between variables that affect the capacity or ability to save on the one hand and the willingness to save on the other. Important variables that determine the ability to save include the level of per capita income; the growth of income (which comprises the growth of per capita income and population growth); the age structure of the population (or dependency ratio) if population is not in balanced growth, and the distribution of income. Key variables that dete...

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“…All the tables and figures in the following section are product of author's calculations. Table 2 Gross National Savings GNS Share of GDP ; (Khan & Abdullah, 2010); (Johnson, 2015) Gross Domestic Product GDP Gross domestic product expressed in current US dollars (Hussein & Thirlwall, 1999); (Jilani, Sheikh, Cheema, & Shaik, 2013) Gross Domestic Product Growth GDPGROWTH Annual percentage growth rate of GDP at market prices based on constant local currency ; (Liberda & Tokarski, 1999);…”