The high saving of developing Asian economies has attracted attention of the researchers and policy makers alike. While various country-specific papers have investigated this issue, the present paper looks into this subject in a panel setting discerning the common variables influencing the saving behaviour in developing Asian economies. In particular, the saving behavior of six high saving countries in developing Asia, viz., China, India, Indonesia, Malaysia, the Philippines and Thailand, have been probed in a panel-data framework over the period 1990 through 2007. Specifically, two questions are examined: (a) Does developing Asia save more? and (b) What are the determinants of Asian savings? In the present study, answer to the first question emerges as affirmative from the stylized facts. Furthermore, factors such as high growth, low age-dependency, increasing degree of financial deepening, presence of liquidity constraint, remittances, terms of trade shock and human capital formation emerge as key determinants of savings from the econometric analysis of this panel of six countries. Thus, it seems that the high savings of developing Asian nations can be explained in terms of these standard variables. This has important implications for the way ahead and policy options for resolving global imbalances.

A key issue in the recent empirical macroeconomics has been the high growth experience of the developing Asia. Apart from the pre-Asian crisis experience, the quick recovery of the East Asian tigers and cubs to the high-growth trajectory, and the entry of China and India in the high growth club, have all been areas of interest of international macro chronicle. But why did Asia grow so fast? One of the variables that is often emphasized in this context has been the high saving rates of developing Asia. After all, growth of output of any economy depends on capital accumulation, which, in turn, requires investment and an equivalent amount of savings to match it (Thirlwall, 1999). Two of the most important issues in development economics, and for developing countries are, thus: (a) How to stimulate investment? and (b) How to bring about an increase in the level of saving to fund increased investment? Interestingly, in the Solow (1956) variety of neoclassical growth model, an increase in savings ratio (i.e., savings-GDP ratio) is capable of generating higher growth only in the short run during transition between steady states, while the long-run growth being determined by the demographic factors. In the more recent literature on endogenous growth models, higher saving can lead to higher capital accumulation and consequently higher long-run growth rates (Lucas, 1988).

Difference in saving rates across countries, thus, continues to be an interesting question haunting the economists and policy makers alike. Consider the following statement from the recent work of Akerlof and Shiller (2009, p. 118):

It should be no surprise that the rate of saving is highly variable across countries. Some countries have net saving of a third of their national income; some have negative net savings.

In this context, the high saving rates of Asian economies have attracted much attention. Illustratively, in 2007, while China saved more than 50% of its GDP, the saving rate of the US was slightly above 10%. Why is it so? Are the Asians by nature thrifty? Is it something anthropological or cultural? Or, since the social security in many of the Asian countries is not so great, are people forced to save more? Does the high job insecurity in some economies force people to save? Alternatively, is it the demographic structure of Asia that induces people to save more? These questions are often raised in popular media and academic literature alike.

The issue of high saving by the Asian countries has another dimension. The hypothesis of ‘global savings glut’, as initiated by Bernanke (2005), views excess saving of Asian emerging market countries as the major cause of the US current account deficit. From this perspective, the US external imbalance is a problem made overseas. Thus, it is amenable to a solution only in the longer term, as better developed financial systems could mitigate this excess saving problem.1

It is in this context, the present paper looks into the saving experience of developing Asia empirically. The main thrust of this paper is that instead of looking at a particular economy, the paper looks into this empirical question at a panel setting for a group of high-saving economies in Asia, covering the period 1990-2007.

The rest of the paper is organized as follows: it gives a brief survey of the literature, followed by some of the stylized facts on Asian saving. Subsequently, it discusses the empirical results on determinants of Asian saving, and finally provides conclusion with possible directions for future research.

Applied Economics Journal, Market Determination Regimes, Mundell-Fleming Model, Liberalized Exchange Rate Management System, Dual Exchange Rate System, Basket Pegged System, Indian Economy, Historical Datasets, Policy Implications, Vector Error Correction Model, Granger Cause Variations, Bidirectional Granger Causality.