Private Savings in Transition Economies: Are There Terms of Trade Shocks?

39 Pages Posted: 16 Jul 2003

See all articles by Abdur Chowdhury

Abdur Chowdhury

Marquette University - Department of Economics; United Nations - Economic Commission for Europe

Date Written: May 2003

Abstract

The paper examines the impact of terms of trade shocks on private savings in the transition economies after accounting for the effect of other determinants. Economic agents in the transition economies are subject to tight credit constraints which are more pronounced during bad state of nature. Thus, adverse shocks to commodity prices in the world market can force them to reduce savings by a larger amount than they would otherwise have. Empirical analysis using a dynamic panel model and data from twenty one transition economies confirm that most of the determinants of savings identified in the literature also apply to the transition economies. Favorable movements in both the permanent and transitory components of the terms of trade have a significant positive impact on private savings with transitory movements having a larger impact than the permanent component. This reflects the lack of access to foreign borrowing that many of the transition economies have faced during the last decade. Although the impact of terms of trade shocks are found to be asymmetric, the magnitude of the impact appears to be small. The results are robust for alternative estimators, determinants, and country groupings.

Keywords: transition, private savings, terms of trade

JEL Classification: F10, E21, P33

Suggested Citation

Chowdhury, Abdur, Private Savings in Transition Economies: Are There Terms of Trade Shocks? (May 2003). William Davidson Institute Working Paper No. 572. Available at SSRN: https://ssrn.com/abstract=407160 or http://dx.doi.org/10.2139/ssrn.407160

Abdur Chowdhury (Contact Author)

Marquette University - Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

United Nations - Economic Commission for Europe ( email )

Palais des Nations
Geneva
Switzerland

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