Saving in Southeast Asia and Latin America

Saving in Southeast Asia and Latin America Compared:
Searching for Policy Lessons

Anuradha Dayal-Gulati and Christian Thimann

High saving rates in Southeast Asia have received much attention, in part because of their distinctive role in fostering rapid growth in this region. In Latin America, saving and growth rates have been significantly lower. This paper examines the main determinants of saving across the two regions, both from the perspective of the relationship between saving and growth, and to give some guidance to policymakers seeking effective means to restrain external current account deficits.

Thus, the paper undertakes an empirical analysis of the determinants of saving behavior in the two regions over the period 1975-95. The analysis points to private savings being positively influenced by a number of factors, such as lower social security expenditures, fully funded pension schemes (although this effect is diminished if withdrawal restrictions are eased), and financial deepening; on the other hand, high volatility in the economic environment discourages saving. In addition, fiscal policy is found to play a key role in determining national saving rates since public saving only partially crowds out private saving. The level of per capita income is also a significant determinant of private saving rates, suggesting that economies increase their saving rates as they develop.

From a policy perspective, two conclusions bear underscoring: prudent fiscal policy (including funded social security arrangements) increases national saving; and policies that improve the economic framework by encouraging macroeconomic stability and financial development also play a central role.

Anuradha Dayal-Gulati is an economist in the IMF's Southeast Asia and Pacific Department. She holds a Ph.D. from Brown University.

Christian Thimann is an economist in the IMF's Southeast Asia and Pacific Department. He holds an M.Sc. from the London School of Economics and a Ph.D. from the University of Munich.

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