Benjamin, J., P. Chinloy, and G. Jud, 2004, “Real Estate versus Financial Wealth in Consumption,” The Journal of Real Estate Finance and Economics, 29 (3): 341–354.
Case, K., J. Quigley, and R. Shiller. 2005. “Comparing Wealth Effects: The Stock Market versus the Housing Market,” The B.E. Journal of Macroeconomics, 5 (1): 1–34.
IMF. 2017. “What Drives Private Savings in Singapore?” Singapore: Selected Issues Paper, IMF Country Report No. 17/241, International Monetary Fund, Washington DC.
Masson, P., T. Bayoumi, and H. Samiei. 1998. “International Evidence on the Determinants of Savings,” World Bank Economic Review, 12 (3): 483–501.
Modigliani, F. 1966. “The Life-Cycle Hypothesis of Saving, the Demand for Wealth, and the Supply of Capital,” Social Research, 33 (summer): 160–217.
Phang, S. 2002. “The Impact of Housing Prices on Aggregate Consumption: Evidence from an East Asian City-State,” Singapore Management University Economics and Statistics Working Paper 7–2002.
Schmidt-Hebbel, K., S. Webb, and G. Corsetti. 1992. “Household Saving in Developing Countries: First Cross-Country Evidence,” World Bank Economic Review, 6 (3): 529–547.
Tobin, J. 1967. “Life-Cycle Saving and Balanced Growth,” in William Fellner, ed., Ten Economic Studies in the Tradition of Irving Fisher, pp. 231–56. New York: John Wiley and Sons.
Prepared by Raveesha Gupta and Mahvash S. Qureshi.
The saving behavior of pensions plans enhances the empirical importance of the income effect on private saving. For defined benefit plans, for example, higher interest rates increase the income available to pay pensions, allowing lower contributions (Bernheim and Shoven, 1988).
In addition, equation (1) also includes a binary variable equal to one for the global financial crisis years (and zero otherwise) to capture the extraordinary size of the shock and its potential impact on the saving rate.
The fixed effects estimation of models with lagged dependent variable can produce biased estimates (the so-called “Nickell bias”). The bias (equal to 1/T) is serious for short panels, but disappears as T→∞ (for our sample, T=40; so the fixed effects estimator is likely to perform at least as well as many alternatives; Judson and Owen, 1999). To check the robustness of our results, however, we also apply the System GMM estimator for dynamic panels and find the results to be generally robust.
While it could be argued that the private sector may not be responding to the increasing longevity and rising future elderly dependency ratio as it expects public saving to increase (to provide old-age benefits), the lack of private-public savings trade-off does not support this argument. Moreover, estimating the national savings function, the results show no statistically strong association between the demographic variables and the old-age dependency ratio, implying that overall savings are not responding much to the changing demographic profile.
Restricting the sample to sub-Saharan African countries only, the results show that, on average, private savings respond strongly to several economic factors (the public saving rate, real GDP growth, change in terms of trade, and inflation), but not to demographic variables.