The Impact of Structural Policies on Saving, Investment and Current Accounts

Abstract

This paper explores the impact of structural policies on saving, investment, and current accounts in OECD and non-OECD economies. Since the current account effects of structural reforms are often complex and ambiguous from a theoretical perspective, new OECD empirical analysis is carried out. Reduced-form equations are estimated for a panel of 30 OECD countries as well as for a panel/cross-section of 117 OECD and non-OECD countries that relate saving, investment and current accounts to policy indicators and a set of macroeconomic control variables. This work suggests that structural reforms may influence saving, investment and current accounts through their impact on macroeconomic conditions such as productivity growth or public revenues and expenditures, but also more directly: i) higher social spending (in particular on health care) is found to lower the saving rate and thereby to weaken the current account, most likely reflecting lower precautionary saving; ii) product market liberalisation temporarily boosts investment and thus also weakens the current account; iii) financial market deregulation may lower the saving rate, though only in less developed countries; iv) stricter employment protection may be associated with lower saving rates if unemployment benefits are low, as well as with higher investment rates possibly due to greater substitution of capital for labour. A scenario analysis indicates that fiscal consolidation and structural reforms in the main world economies could significantly reduce current global imbalances, possibly by about a third. L'impact des politiques structurelles sur l'épargne, l'investissement, et la balance courante Cet article étudie l'impact des politiques structurelles sur l'épargne, l'investissement, et la balance courante de pays membres et non-membres de l'OCDE. Cette nouvelle étude de l'OCDE en présente une analyse empirique, l'impact des réformes structurelles sur la balance courante étant souvent complexe et ambigu d'un point de vue théorique. L'épargne, l'investissement et la balance courante sont reliés à un ensemble de variables de politiques structurelles par des équations de forme réduite, estimées en incluant des variables macroéconomiques de contr“le. Les régressions sont basées d'une part sur des données de 30 pays de l'OCDE disponibles sur une longue période, et d'autre part sur des séries plus courtes pour 117 pays membres et non-membres de l'OCDE. Cette étude suggère que les réformes structurelles peuvent influencer l'épargne, l'investissement et la balance courante via leur impact sur les conditions macroéconomiques telles que la croissance de la productivité, les recettes ou les dépenses publiques. Plus directement, elle indique également que : i) une augmentation des dépenses de protection sociale (en particulier des dépenses de santé) réduit le taux d'épargne, et donc affaiblit la balance courante, reflétant probablement une diminution de l'épargne de précaution ; ii) une libéralisation du marché des biens et services augmente temporairement l'investisseme...

Saving, investment, capital stock and current account projections in long-term scenarios

“… A one-percentage point increase in the old-age dependency rate lowers the aggregate saving rate by 1.1 percentage points of GDP. The effect is, in absolute value, in the upper tail of estimates from other studies, which range from 0.3 (Aizenman, Cheung and Ito, 2016 [19] ), 0.6 (Kageyama J., 2003 [20] ; Kerdrain, Koske and Wanner, 2010 [21] ), 0.7 (Loayza, Schmidt-Hebbel and Servén, 2000 [7] ), to 1.3 and 1.5 (Bloom, Canning and Graham, 2003 [10] ; Bloom et al, 2006 [22] ). 5 The previous versions of the aggregate saving rate equation incorporated the Kerdrain, Koske and Wanner (2010 [21] ) estimate.…”

“…The first two terms on the right-hand side of [20] measure the difference between investment and output price inflation. In the long-term model, this difference is a constant parameter ( ), set by assumption to a negative value to reflect the expectation of a continuing trend decline in relative investment prices.…”

“…The coefficients from other studies (all statistically significant) were transformed from dynamic equations in the same fashion as described in equation[4] 6. See also Li, Zhang and Zhang (2006[23] ),Kinugasa and Mason (2007 [36] ) andKageyama (2003 [20] ) for more results and different estimation methods.…”

Miracle or Mirage

“…The empirical literature suggests that, at least in the short and medium run, trade imbalances are driven by the joint effects of a variety of cyclical and structural factors such as near-term cyclical variations in output and demand, oil and commodity prices, demographics, FDI attractiveness or financial depth. In this context, a range of policy settings, including trade, have been found to influence medium-run imbalances, either as they target trade balances directly or as they affect public and private saving and investment (Koske, 2011;Guillemette and Turner, 2013;Kerdrain et al, 2010;Kowalski andLesher, 2011, Barratieri, 2014;Joy et al, 2018).…”