Reexamining the National Savings-Investment Nexus Across Time and Countries

Author/Editor:

Antonio David ; Carlos Eduardo Gonçalves ; Alejandro M. Werner

Publication Date:

July 10, 2020

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 20/124

Subject:

Frequency:

regular

English

Publication Date:

July 10, 2020

ISBN/ISSN:

9781513548579/1018-5941

Stock No:

WPIEA2020124

Format:

Paper

Pages:

35

Please address any questions about this title to publications@imf.org