Saving Trends in Southeast Asia: A Cross-Country Analysis

Saving Trends in Southeast Asia: A Cross-Country Analysis
by Hamid Faruqee and Aasim M. Husain

This paper reviews long-run developments in private saving behavior in
Indonesia, Malaysia, Singapore, and Thailand since 1970. Over this period,
rates of private sector saving in these economies have risen steadily and
are presently among the highest in the world. Using cointegration analysis,
the paper empirically examines the economic determinants underlying the
long-run pattern of saving in these countries and the degree to which these
economies share common developments in the factors accounting for their
strong saving performance.

Based on country estimates and cross-country analysis, the principal
finding of this study is that shifts in the demographic structure of the
population appear to be the main factor explaining the sustained rise in the
rate of saving in all four countries over the sample period. Fundamental
demographic shifts increasing the relative size of the working age
population appear to have boosted the rate of saving in these countries.
Moreover, the magnitude of these long-run effects appears to be quite
comparable across countries with the exception of Indonesia, where the
impact has been even more pronounced.

The paper finds that the long-run implications of provident funds and
compulsory saving policies are less clear. Compulsory provident fund saving
appears to have had little or no consequence for the trend rate of saving in
Malaysia, but there is some evidence of a long-run impact in Singapore.
These differences may well be tied to each country's differing experience
with compulsory saving schemes. Finally, financial deepening appears to be
marginally significant for the long-run determination of saving only in the
case of Singapore, the country achieving the highest level of financial
development over this period.