Saving in Asia: Issues for Rebalancing Growth

53 Pages Posted: 21 May 2010  

Shikha Jha

Asian Development Bank

Akiko Terada-Hagiwara

Asian Development Bank

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics

Date Written: May 1, 2009

Abstract

This paper assesses the role of consumption and saving in Asia’s growth. It examines the composition of national saving, analyzes what forces drive saving rates, and draws policy conclusions from the analysis that are relevant for the economies in the region and which might play an important part in rebalancing global growth. The paper identifies a number of issues. A rapid rise in the profitability of state-owned and private enterprises together with distorted dividend policies and underdeveloped financial markets in the People’s Republic of China (PRC) seem to have contributed to the corporate sector saving spiral. Rising corporate saving rates in India can be attributed to lower corporate tax rates, customs duty, and interest rates along with restructuring of firms. Channeling corporate saving into investment will require elimination of policy distortions and financial sector development including availability of better saving instruments and improved business and investment climates. At the household level, demographic trends, financial development, and precautionary saving are revealed to be important for Asian savers. Two case studies from the PRC and Philippines suggest that these factors are interrelated and complement one another. The surge in urban households’ saving in the PRC has two main drivers. First, younger households lack access to credit and accumulate savings in order to purchase durable goods such as televisions, white goods, and automobiles. Second, most urban households undertake precautionary saving as a hedge against risks of illness or other healthcare expenses and in order to finance educational expenses. Hence policies that develop financial markets enabling borrowing against future income, and that rationalize public spending to increase social transfers, reform pension systems, and provide universal health care insurance and education, appear top priorities. These policies would moderate household saving rates and help in rebalancing growth toward consumption.

Suggested Citation

Jha, Shikha and Terada-Hagiwara, Akiko and Prasad, Eswar S., Saving in Asia: Issues for Rebalancing Growth (May 1, 2009). Asian Development Bank Economics Working Paper No. 162. Available at SSRN: https://ssrn.com/abstract=1611474 or http://dx.doi.org/10.2139/ssrn.1611474

Shikha Jha (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Akiko Terada-Hagiwara

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management ( email )

440 Warren Hall
Ithaca, NY 14853
United States

HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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