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 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.

Bibliographic Details

Main Authors:	de la Torre, Augusto, Ize, Alain
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2015-08
Subjects:	CURRENCY MISMATCHES, GROWTH RATES, PUBLIC SAVINGS, MONETARY POLICY, DEPOSIT, CAPITAL MARKETS, FINANCIAL SERVICES, EXTERNAL COMPETITIVENESS, FOREIGN CAPITAL, FOREIGN DEBT, INSTITUTIONAL ENVIRONMENT, CAPITAL ACCUMULATION, SKILLED WORKERS, DISPOSABLE INCOME, INCOME, INTEREST, RATE OF RETURN, DEBT CRISIS, LONG-TERM FINANCE, MARGINAL COST, INTEREST RATE, RATE OF RETURN ON CAPITAL, EXCHANGE, STOCK MARKET, INCOME GROUP, MACROECONOMIC POLICY, LIQUIDITY, DEVELOPING COUNTRIES, POLITICAL ECONOMY, BINDING CONSTRAINT, INFLATION CRISIS, FISCAL POLICY, WORLD DEVELOPMENT INDICATORS, RISK PREMIUM, OUTPUT RATIO, FACTORS OF PRODUCTION, SUBSIDY, PRICE, TAX, SAVING, CURRENT ACCOUNT SURPLUSES, SAFETY NETS, MARKET BEHAVIOR, CENTRAL BANK, EXTERNAL FINANCE, PRIVATE SAVING, INSTITUTIONAL INVESTOR, SAVINGS, CURRENCY, REGIME CHANGES, LIBERALIZATIONS, LOW-INCOME COUNTRIES, DOMESTIC CAPITAL, INVESTOR BEHAVIOR, EXCHANGE RATES, OUTPUT GAPS, INTEREST RATES, GLOBALIZATION, CAPITAL OUTFLOWS, DEBT, CAPITAL MARKET, INFLATION CRISES, FINANCIAL CRISES, FOREIGN ASSETS, GOVERNANCE INDICATORS, OPEN ECONOMY, SOCIAL PROTECTION, MIDDLE-INCOME COUNTRIES, DIVIDENDS, NATURAL RESOURCES, GROSS DOMESTIC PRODUCT, INSURANCE POLICY, FOREIGN CURRENCY, POWER PARITY, TAXES, EQUITY, SOVEREIGN DEBT, SOCIAL SAFETY NETS, HUMAN CAPITAL, CAPITAL CONTROLS, CAPITAL RATIO, CREDIT CONSTRAINTS, VOLATILITY, COUNTRY RISK, FINANCIAL STABILITY, FINANCIAL CRISIS, FOREIGN FINANCING, FUTURE, DEBT CRISES, PENSIONS, OUTPUT RATIOS, PURCHASING POWER, FOREIGN INVESTMENT, AGGREGATE DEMAND, DIVIDEND, INCOMES, CAPITAL FLOWS, SHARES, EQUILIBRIUM VALUES, CREDIT RATING, MIDDLE- INCOME COUNTRIES, OUTPUT, CAPITAL INFLOW, CLOSED ECONOMY, GOVERNANCE, INFLATION RATES, EXPOSURE, INSURANCE, ECONOMIC DEVELOPMENT, TRADE, INVESTOR, GROWTH ●INVESTMENT, MARKET VOLATILITY, PUBLIC SAVING, GROWTH RATE, INVESTMENT, NATURAL RESOURCE, SHARE, BALANCE SHEETS, COLLATERAL, TRADES, RATE OF GROWTH, CAPITAL INFLOWS, LONG- TERM FINANCE, EXCHANGE RATE, COMMODITY PRICES, FINANCIAL SECTOR, CAPITAL FLIGHT, COMMODITY, CAPITAL ACCOUNT, INTERNATIONAL RESERVE, INFLATION EPISODES, PRICES, EXCHANGE RATE REGIMES, COST OF CAPITAL, COMPETITION, CROSS-BORDER CAPITAL,
Online Access:	http://documents.worldbank.org/curated/en/2015/08/24879192/latin-america-save-more-grow-faster https://hdl.handle.net/10986/22444
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