Globalization and household saving: Is there a link?

Although household saving rates differ across different regions, harmonized data from the OECD and the United Nations shows evidence of a convergence trend since late 1980s. This paper studies macroeconomic household saving data with a globalization index as a potential determinant, in addition to the common determinants in the literature for saving, and adopts the Pooled Mean Group estimator for heterogeneous panels as the main approach. It finds evidence that deepened globalization in the social and cultural aspects tends to reduce household saving, and may be a contributing source of the recent decline in saving rates in some regions. A possible cause of the convergence trend is cultural changes induced by globalization. Although not well studied in the economics field, cultural difference is often cited as a factor explaining saving behavior in a few other fields, such as sociology and marketing. If this is the case, social interactions between countries can induce cultural changes and narrow the differences in values, resulting in shifts in saving behavior and possibly a convergence in saving rates. The results of the paper are also consistent with the existing theory that the importance of consumption increases (thus lower saving) in a more mobile society. Policies concerning saving, investment, and current account imbalances should take this into account as the trend continues.