Transitional Dynamics of the Saving Rate and Economic Growth

TL;DR

This paper examines how the relationship between economic growth and savings rate varies across countries and over time, highlighting the roles of income levels and credit availability in shaping savings behavior.

Contribution

It introduces a model with credit constraints to explain the diverse dynamics of savings and growth, supported by cross-country empirical evidence.

Findings

GDP growth boosts savings in poor countries but reduces it in rich countries.

Higher credit-to-GDP ratio lowers savings rate and income elasticity.

Empirical evidence links new business registrations and corporate savings to theoretical predictions.

Abstract

We estimate the relationship between GDP per capita growth and the growth rate of the national savings rate using a panel of 130 countries over the period 1960-2017. We find that GDP per capita growth increases (decreases) the growth rate of the national savings rate in poor countries (rich countries), and a higher credit-to-GDP ratio decreases the national savings rate as well as the income elasticity of the national savings rate. We develop a model with a credit constraint to explain the growth-saving relationship by the saving behavior of entrepreneurs at both the intensive and extensive margins. We further present supporting evidence for our theoretical findings by utilizing cross-country time series data of the number of new businesses registered and the corporate savings rate.