Global imbalances and savings of developing Asia: Facts and fiction

Global imbalance, in the sense of persistent and large current account imbalance has emerged as a key responsible factor behind the global financial crisis since 2007 (Bernanke, 2009; Chinn, 2011). As the current account balance can be interpreted as the savings and investment balance of an economy via the national accounts identity, the phenomenon is often linked to “savings glut” of a few Asian and Middle East and North African nations.

The broad stylized facts have emerged as follows. While on the whole European countries are on balance, the huge deficit of the United States seemed to have been financed by massive current account surpluses of a few countries in the developing Asia and the oil producing economies. The genesis of current account surplus between these two sorts of countries is, however, different. While the surplus of the oil producing countries is essentially linked to budgetary surplus on account of oil, the causes of surplus behind the high saving in Asian economies could be more organically connected. Is not it consistent with the observed phenomenon of Lucas paradox whereby capital moves uphill from the poor to the richer countries (Lucas, 1990)? This present paper in this context looks into the role played by developing Asian countries and examines the saving behavior of a few developing Asian economies.

We confine our attention to five countries in Developing Asia (viz., China, Indonesia, Malaysia, the Philippines, and Thailand). On a consistent basis these five countries have experienced current account surplus.  While we concentrate on the twenty-one year period 1990-2011 to begin with, we consider a smaller time period of 1998 – 2011 so as to focus on the post-Asian crisis period.

After discerning the stylized facts on savings, investment and current account surplus of these five countries, we concentrate on their saving behavior. We take an eclectic view of savings and take usual determinants like old age dependency ratio, per capita income, terms of trade, degree of financialization, and remittances as factors influencing saving behavior.

While adopting the dynamic panel data model, we use Arellano-Bond GMM estimation technique, which yields both consistent and unbiased estimators.

The results are expected to throw light on whether traditional factors could explain the high saving behavior of developing Asia. The outcome is expected to delve into the causes and nature of "savings glut" as a cause of global imbalance.

JEL Classification: E21, F32, F62, O11