Should Latin America Save More to Grow Faster?
Latin America’s historically low saving rates and sub-par growth performance raise the question of whether the region should save more to grow faster. Economists generally resist acknowledging a policy-exploitable causal connection going from savin...
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/08/24879192/latin-america-save-more-grow-faster http://hdl.handle.net/10986/22444 |
| Summary: | Latin America’s historically low saving
rates and sub-par growth performance raise the question of
whether the region should save more to grow faster.
Economists generally resist acknowledging a
policy-exploitable causal connection going from saving to
growth because domestic saving is perceived to be fully
endogenous, optimally determined, or fully substitutable by
foreign saving. However, to the extent that these three
assumptions do not hold, three channels can be established
through which higher domestic saving—by curbing persistent
current account deficits—can promote medium-term growth. The
channels are first, a real interest rate channel, whereby
higher saving reduces the cost of capital and enhances macro
sustainability; second, a real exchange rate channel,
through which higher saving leads to a more competitive real
exchange rate; and third, an endogenous saving channel,
whereby saving follows growth and, hence, subsequently
compounds the effect of the first two channels. Econometric
evidence supports all three channels and suggests that the
lower-saving countries in Latin America and the Caribbean,
especially those with recurrently weak balance of payments
and persistent domestic demand pressures on the non-tradable
sector, would benefit the most from boosting their saving rates. |
|---|