Front Matter Page

Asia and Pacific Department

Authorized for distribution by David J. Robinson

Contents

• Summary

• I. Introduction

• II. Empirical Background and Results From the Literature

  • A. Saving Trends in Southeast Asia and Latin America

  • B. Factors That Affect Saving

  • C. Policy Factors

  • D. Nonpolicy Factors

• III. An Empirical Comparison of Saving in Southeast Asia and Latin America

  • A. Policy Factors

  • B. Nonpolicy Factors

• IV. Estimation Results

  • A. Fiscal Policy and Social Security Arrangements

  • B. Financial Market Development

  • C. Macroeconomic Stability

  • D. Growth and Demographics

  • E. External Factors

• V. Conclusions and Policy Implications

• Figures

• 1. Trends in Private Saving Rates

• 2. Trends in National Saving Rates

• 3. Trends in the Government Deficit

• 4. Trends in Social Security Expenditures

• 5. Developments in M2/GDP

• 6. Trends in Per Capita Income

• Tables

• 1. Private Saving Rates

• 2. Descriptive Statistics for East Asia and Latin America, 1975–95

• 3. Analysis of Variation for ASEAN and Latin American Countries

• 4. Southeast Asian and Latin American Countries Combined: Estimation Results

• 5. ASEAN Countries: Estimation Results

• 6. Latin America: Estimation Results

• References

SUMMARY

This paper analyses empirical determinants of private saving for a sample of Southeast Asian and Latin American economies over the period 1975–95. Saving rates in Southeast Asia have been on an upward trend over the period, while in Latin America the trend has been downward. Understanding the driving forces behind the widely differing saving behavior may help shed light on the different growth performance between these two regions.

The paper distinguishes between policy factors affecting saving such as fiscal policy, social security arrangements, macroeconomic stability, and financial market development, and nonpolicy factors, which include growth, demographics, and external factors. Panel regressions are used to establish empirical relationships between these factors and the rate of private saving. The estimations were conducted for the two regions separately as well as for a combined sample.

The findings suggest that a wide range of factors have an impact on private saving. Government saving crowds out private saving only partially; social security expenditures are associated with lower private saving, and the fully funded pension schemes (which exist in some of the countries in the sample) generally have a positive effect on private saving. However, where restrictions on withdrawals from these funds were eased, the effect on saving was found to be smaller or ambiguous. Macroeconomic stability—proxied by variation in the inflation rate—and financial deepening—proxied by M2/GDP—are both found to have a positive effect on saving and are important in explaining differences in saving behavior between the two regions. Although economic growth was not found to be significant, increases in per capita income have a positive impact on saving.