jin2graph1.2

Why Are Savings Patterns So Different?

While global imbalances have preoccupied many observers, few have sought to explain the divergence in world savings behavior. One reason may be that credit markets are more developed in advanced economies than they are in emerging countries, particularly in terms of the degree to which households are able to borrow.

BEIJING – Ever since the integration of emerging markets into the global economy began in the early 1990’s, three striking trends have emerged: a divergence in private savings rates between the industrialized core and the emerging periphery (the former experiencing a sharp rise, and the latter a steady decline); large global imbalances between the two regions; and a drop in interest rates worldwide. But, while global imbalances have preoccupied many observers, few have sought to explain the divergence in world savings behavior.

In 1988, the household savings rate in China and the United States was roughly equal, at about 5%. Yet, by 2007, China’s household savings rate had risen to a staggering 30%, compared to just 2.5% in the US. The pattern is not uncharacteristic of other industrialized countries relative to emerging markets over the last two decades (Figure 1).

Savings behavior invariably reacts to changes in interest rates, which have fallen steadily over the last two decades to today’s record-low levels. But how can savings patterns be so different – often opposite – in globalized economies that are well integrated into world capital markets?

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

http://prosyn.org/r10nBy0;
  1. haass102_ATTAKENAREAFPGettyImages_iranianleaderimagebehindmissiles Atta Kenare/AFP/Getty Images

    Taking on Tehran

    Richard N. Haass

    Forty years after the revolution that ousted the Shah, Iran’s unique political-religious system and government appears strong enough to withstand US pressure and to ride out the country's current economic difficulties. So how should the US minimize the risks to the region posed by the regime?

  2. frankel100_SpencerPlattGettyImages_mansitswithumbrellawallstreet Spencer Platt/Getty Images

    The US Recovery Turns Ten

    Jeffrey Frankel

    The best explanation for the current ten-year US economic expansion – tied for the longest since 1854 – is disappointingly simple: the Great Recession was the worst downturn since the 1930s. And if the dates of American business cycles were determined by the rule that most other countries apply, the current expansion would be far from beating the record.

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.