What%20is%20the%20Relationship%20between%20National%20Saving%20and%20Investment%20in%20Latin%20America%20and%20the%20Caribbean%3F

Working Papers

What is the Relationship between National Saving and Investment in Latin America and the Caribbean?


CODE: IDB-WP-617
AUTHOR(s): Cavallo, Eduardo A.
PUBLISHED: September 2015
LANGUAGE: English
RELATED TOPICS: Macroeconomics
DOWNLOAD FILE IN: English

Abstract:

Using panel co-integration techniques and a comprehensive dataset covering the period 1980-2013, this paper finds a positive and significant correlation between national saving and domestic investment rates in Latin America and the Caribbean (LAC). The estimated correlation is approximately 0.39; i.e., for every 1 percentage point of GDP increase in national saving, domestic investment increases by 0.39 percentage points on average. There are however, three nuances to the headline result: i) the estimated correlation has been declining over time; ii) the regional average hides a large degree of intra-regional heterogeneity; and iii) the estimated coefficient is largest amongst the biggest economies in the region. It is concluded that low national saving rates remain a binding constraint for capital accumulation in LAC.

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