Academic journal article Economia

A Comparison of Saving Rates: Microdata Evidence from Seventeen Latin American and Caribbean Countries

Academic journal article Economia

A Comparison of Saving Rates: Microdata Evidence from Seventeen Latin American and Caribbean Countries

Article excerpt

(ProQuest: ... denotes formulae omitted.)

According to the World Development Indicators (WDI), gross national savings in Latin America as a percentage of gross domestic product (GDP) was 20 percent in 2012. This figure is well below East Asia and Pacific (40 percent) and South Asia (30 percent), but about the same as other regions like Europe and Central Asia (17 percent) and sub-Saharan Africa (17 percent) and above the United States (12 percent). The comparison between these regions suggests that there is not an obvious relationship among national savings, growth, and development. This might be due to significant heterogeneity within regions. In particular, Latin America and the Caribbean is not a homogeneous entity in many dimensions, including saving rates. In 2012, the saving rate was as large as 26 percent in Bolivia and as low as 9 percent in neighboring Paraguay.

National savings are themselves aggregates of heterogeneous households' (or individuals') personal savings decisions. On theoretical grounds, life-cycle models imply that individuals' savings behavior differs by age.1 Alternatively, the permanent income hypothesis suggests that consumption (and therefore savings) will differ among individuals whose determinants of permanent income are different.2 Empirically, Carroll, Rhee, and Rhee test for cultural effects on saving behavior in the United States.3

Differences in saving rates among countries can be disaggregated into the following three categories: differences in saving decisions between similar individuals living in different countries (for example, young people being able to spend above their income level in countries where financial restrictions are less binding or differences in adults' savings due to alternative national social security systems); differences in the population distribution of the relevant groups (for example, differences in the proportion of individuals yet to join the workforce or difference in education levels); and differences in the income share of groups (for example, countries with income concentrated in individuals with low saving rates). The goal of this paper is to address the importance of these differences, with particular interest in the first cause (differences in behavior among population groups). In particular, I am interested in addressing how savings patterns differ by age, income, education level, and area of residence (urban versus rural). To do so, I apply a common methodology to microdata on income and consumption of seventeen Latin American and Caribbean countries and two benchmark economies (the United States and Korea) and compute individual saving rates for the adult population and household saving rates. It has been repeatedly argued that saving rates in Latin America are low, and this constitutes a constraint on sustained growth.4 Most studies are based on saving rates constructed from macroeconomic variables. There are two streams in this literature. One is based on individual country studies using time-series estimations. 5 The other stream evaluates Latin American saving rates within a broader sample of countries. Papers in this latter group use a variety of panel data techniques. Edwards is probably the first in this line of research, followed methodologically by Reinhardt; Pérez-Monteiro, Radusweski, and Cavalcanti; and Lane and Tornell.6 Other Latin American researchers have an even wider country focus. The World Bank research project "Saving across the World" produced a wide-reaching data set that permitted testing other issues like the relationship between income inequality and aggregate savings and between other policy and nonpolicy factors and savings.7 Gutiérrez reviews the empirical literature and finds a positive association of savings with income level and income growth, macroeconomics stability, foreign credit constraints, and demographics.8 The relations of savings with other variables like the real interest rate, types of pension systems, and financial development are mixed. …

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