Saving in Southeast Asia and Latin America compared : searching for policy lessons

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.