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# 1. Introduction

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Over the last three decades the world has witnessed a marked divergence in saving rates, particularly dramatic within the developing world: saving rates have risen steadily in East Asia, stagnated in Latin America, and fallen in Sub-Saharan Africa. These regional saving disparities have been closely matched by diverging growth experiences: across world regions, higher saving rates tend to be correlated with higher income growth.

This large variation in saving performance across countries and over time raises a number of questions. Why do saving rates differ so much across countries and time periods? How much do public policies contribute to these saving disparities, in comparison to other structural and non-policy saving determinants?

From the policy perspective, there are serious questions about the size -- and sometimes even about the sign -- of the effects of policy variables on saving rates. How effective is fiscal policy in raising national saving? Does financial liberalization -- by raising interest rates, encouraging consumer and housing lending, and raising financial depth -- inhibit or encourage private saving? Does foreign lending crowd out national saving? Or perhaps growth-enhancing policies -- such as macro stabilization and structural reform -- would be more effective in raising saving through higher income and growth than any direct saving incentive? In this paper we address the above questions empirically, by exploiting what we believe is the largest cross-country time-series macroeconomic data set on saving and related variables assembled to date. The data set is unique because of various features. First, it encompasses industrial and developing countries and covers nearly 30 years of data. Second, it provides alternative saving measures (for the nation, the central government, the public sector, and the private sector separately; unadjusted and adjusted for inflation-related capital gains and losses). Third, it has been subject to extensive quality checks, which among other things allow us to identify problematic observations and set them aside if necessary.

The objective of the paper is to use this large data set to establish the stylized facts concerning the effects on the private saving rate of its key policy and non-policy determinants identified in the literature. To do this, the paper estimates a variety of empirical equations for the private saving rate. Private saving regressions are estimated for. a worldwide sample of countries, as well as separately for industrial and developing country subsamples. For completeness, the paper also presents regression results for the national saving rate. In order to encompass a broad range of saving determinants, and hence theoretical views about saving, we use a variety of reduced-form linear specifications rather than one narrow model of saving derived from first principles.2 We believe that this approach provides a useful first step to identify the key empirical regularities in need of structural explanation.

We estimate our empirical equations using various panel data procedures, paying particular attention to the issues of simultaneity and country heterogeneity that are mostly ignored in earlier studies. Specifically, our large panel data set allows the use of “internal”