Private Savings in Transition Economies: Are there Terms of Trade Shocks?

Abstract

Economic agents in the transition economies are subject to tight credit constraints, which are more pronounced during bad state of nature. Thus, adverse shocks to commodity prices in the world market can force them to reduce savings by a larger amount than they would otherwise have. Empirical analysis using a dynamic panel model and data from 21 transition economies confirm that most of the determinants of savings identified in the literature also apply to the transition economies. The transitory component in the terms of trade have a larger positive impact than the permanent component. This reflects the lack of access to foreign borrowing. Although the impact of terms of trade shocks is found to be asymmetric, the magnitude of the impact appears to be small. The results are robust for alternative estimators, determinants and country groupings.

Banking Sector Development and Household Saving in Emerging Eastern Europe

“…Our paper extends the existing literature on the saving dynamics in Eastern European countries (Denizer and Wolf, 2000;Chowdhury, 2003;Schrooten and Stephan, 2005) in several directions. First, the previous studies examine the effects of either depth or depth and efficiency, whereas our study considers three characteristics of the banking sector development.…”

“…The previous empirical literature also presents ambiguous evidence on the way an increase in the financial depth affects saving. Some papers (Shrooten and Stephan, 2001;Chowdhury, 2003;Hondroyiannis, 2006) find a significantly negative relation between financial depth and saving, while the other papers (Denizer and Wolf, 2000;Loayza et al, 2000;Edwards, 1995) find either a significantly or insignificantly positive relation between financial depth and saving. An improvement in the efficiency significantly stimulates saving in Latvia, Lithuania, and Romania and significantly discourages saving in Czech Republic and Slovenia.…”

“…Although the results for some variables changed dramatically, the coefficient of the financial depth variable remains positive and significant. Chowdhury (2003) estimates the private saving function for a panel of 21 countries in Eastern Europe and Commonwealth of Independent States for the 1993-2001 period using the GMM dynamic panel technique. The author finds a significantly negative association between the ratio of M2 to GDP and private saving rate.…”

If You’re Going Through Hell, Keep Going: Non-linear Effects of Financial Liberalization in Transition Economies

“…Finally, as there is an extensive literature regarding determinants of saving in transition, I have chosen a range of macroeconomic variables proven to be significant, including the real interest rate (which, as Osoian et. al (2008) note, would have an ambiguous effect on savings due to income and substitution effects), the dependency ratio (Chowdhury 2004, likely to be negative), and the ratio of M2 to GDP, to capture the level of monetization of the economy.…”

New capital accumulation in transition economies: implications for capital-labor and capital-output ratios

“…Inadequate domestic saving and low FDI are often listed among the key reasons for low rates of capital accumulation in TE (see for example , Buiter 2000;Pyle 2002;Transition: The First Ten Years 2002;Berglof and Patrick 2002;Nivorozhkin 2004;Chowdhury 2004;Ahrend 2006;World Development Report 2005). Data on saving rates and FDI for TE and comparator countries presented in Table 5 shows that average saving rates for TE for the studied period are indeed quite low.…”