Reexamining the National Savings-Investment Nexus Across Time and Countries

By Antonio David, Carlos Goncalves, Alejandro M. Werner

July 10, 2020

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Antonio David, Carlos Goncalves, and Alejandro M. Werner Reexamining the National Savings-Investment Nexus Across Time and Countries, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Domestic savings and investment are positively correlated across countries and through time, as Feldstein-Horioka (FH) unveiled 40 years ago. We argue that an interpretation of this correlation based on market failures is more consistent with data patterns than alternative hypotheses. Moreover, resorting to instrumental variables techniques, we conclude that the relationship is causal: an exogenous rise in savings increases investment. This result holds in the full sample of countries and for emerging and developing economies, but there is evidence that the positive association in advanced economies is due to endogeneity bias. The core of our identification strategy relies on the idea that population age structure influences savings, but not total investment directly. Specifically, we use the share of adults in the [35-49] years of age bracket as an instrument for savings. Our estimates pass weak-instruments robust inference.

Subject: Balance of payments, Capital account, Domestic savings, Econometric analysis, Estimation techniques, Income, National accounts, Population and demographics

Keywords: Capital account, Causality, Domestic savings, Estimation techniques, Feldstein-Horioka Puzzle, Global, Income, Investment, Investment, Investment rate, Labor-saving technology, Population share affect investment, Saving, Saving variable, Savings, Savings rate, Savings-investment correlation, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/124
Stock No:

WPIEA2020124
ISBN:

9781513548579
ISSN:

1018-5941

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