Varieties of Saving and Crises
Peer Reviewed
Date issued
Jun 2016
Subject
Saving Rate;
Foreign Saving;
National Saving;
Financial Crisis;
Foreign Exchange;
Currency Crisis;
Investment and Growth;
Financial Risk;
Economic Policy;
Foreign Asset
JEL code
E21 - Consumption • Saving • Wealth;
E22 - Investment • Capital • Intangible Capital • Capacity;
E44 - Financial Markets and the Macroeconomy;
F32 - Current Account Adjustment • Short-Term Capital Movements;
F34 - International Lending and Debt Problems;
G01 - Financial Crises;
G15 - International Financial Markets;
H63 - Debt • Debt Management • Sovereign Debt
Category
Technical Notes
This paper shows, using probit analysis, that low national savings increase the risk of macroeconomic crisis. Foreign savings are a poor substitute of national savings not only for domestic investment (Feldstein-Horioka result), but also for stability. It is found that deeper financial integration does not cure low investment and can improve the situation only to the extent that the risks of the foreign saving portfolio can be kept under control. Overall, a fundamental conclusion is that strong national savings are key for robust growth. Extending the probit analysis, the paper shows that the composition of foreign assets and liabilities matters substantially for portfolio risk and derives an index to assess the associated country risk.
