Saving Rates in Developing Asia

The domestic saving rate in developing Asia as a whole will remain roughly constant over the next twenty years.

In The Determinants and Long-Term Projections of Saving Rates in Developing Asia (NBER Working Paper No. 17581), co-authors Charles Yuji Horioka and Akiko Terada-Hagiwara present and analyze trends between 1966 and 2007 in domestic saving rates in twelve developing Asian economies. They find that domestic saving rates in general have been high and rising but that there are substantial differences among countries. For example, the average nominal domestic saving rate was 11.2 percent in Pakistan and 39.8 percent in Singapore during this period. Moreover, for the entire group of countries, nominal domestic saving rates increased from 19.8 percent in 1966-70 to 37.5 percent in 2001-7.

The main determinants of these trends appear to have been the age structure of the population, income levels, and, to a lesser extent, the level of financial sector development. A high ratio of aged-to-working-age populations has a significant negative impact on the saving rate because the aged typically finance their living expenses from previously accumulated savings. Income levels initially have a negative impact on domestic saving rates but their impact becomes more and more positive as income levels rise.

The impact of financial development on saving depends on the stage of development. In half of the countries in this sample, financial development was in the early stages and had a positive impact on saving rates. For the other half of the sample, financial sector development had progressed enough for the availability of private credit to be having a negative impact on the domestic saving rate.

The authors project that the domestic saving rate in developing Asia as a whole will remain roughly constant over the next twenty years. However, there will continue to be substantial variation from economy to economy. The rapidly aging economies will show a sharp downturn in their domestic saving rates by 2030 because the negative impact of population aging will dominate the positive impact of higher income levels. The less rapidly aging economies will show rising domestic saving rates, at least until 2020, because the positive impact of higher income levels will dominate the negative impact of population aging. The primary exception is China, where the domestic saving rate is projected to remain roughly constant for the next two decades, as the substantial downward pressure caused by the rapid population aging will be roughly offset by the substantial upward pressure caused by higher income levels.

--Claire Brunel