(the ES on steroids case). In this case, the ER and IR channels cease to operate because growth becomes self-propelled and saving is no longer a constraint.

The channels can interact and operate in sequence, becoming dominant at different points in time. Thus, a period of IR channel dominance may be followed by improvements in macro-financial policy that set the conditions for a return of the ER channel. In turn, a prolonged period of current account deficits and uncompetitive real exchanges under the ER channel can bring back IR dominance.

We test for such patterns empirically based on a simultaneous equations model that focuses on medium-term equilibrium relationships and uses an extensive set of controls to correct for structural as well as policy diversity across countries. The model is driven by a set of elasticities linking domestic saving, investment, the real exchange rate, the sovereign risk rating, and growth. Using data for 119 countries over the 1980-2012 period, these elasticities are estimated through both structural-form ordinary least squares (OLS) and reduced-form instrument-based OLS regressions. A benchmarking methodology is used to explore the macro patterns associated with the channels, ensuring that countries can be properly compared and that deviations from benchmark can be interpreted as being largely driven by differences in policy or policy-driven institutions.

The empirical results broadly support the IR and ER macroeconomic patterns. In particular, under-saving correlates robustly with real exchange rate over-valuation (all relative to benchmark), which suggests a statistical dominance of the ER channel for the entire sample. On average, countries that under-save have over-valued real exchange rates, rely less on external demand (are less export oriented), grow slower, and invest less. However, the countries that deviate the most from the ER pattern tend to fit the IR pattern, which associates under-saving with low growth despite undervalued real exchange rates. As expected, the undersavers and over-savers in this latter group differ considerably as regard their country risk ratings, with the under-savers having the worst ratings, the over-savers the best. We also find support for a normal (hence not dominant) ES channel. The latter mainly accrues from corporate saving, by far the most growth-elastic component of domestic saving.

While structural OLS estimates yield limited impacts of saving on growth, the reducedform instrumented estimates, when available (only some elasticities could be retrieved due to the high endogeneity in the system), point toward substantially higher impacts. Moreover, the estimated strength of these effects is much greater for countries with current account deficits in the middle-income stages of development. Hence, domestic saving mobilization policies make more sense for middle-income countries with weak balance of payments.

Applying the analysis to Latin America, we find that the region has been a clear outlier relative to the world average in that the IR channel played a uniquely important role during the crisis times of the 1980s and 1990s. During the more recent commodities boom period that ended around 2011, the region mostly re-aligned itself along a more typical ER pattern, with much improved sovereign risk ratings and substantial real exchange rate appreciations. After 2011, however, the falling terms of trade have tended to realign the region along an IR direction, as several low-saving commodity-exporting Latin American countries have experienced substantial declines in country ratings accompanied by large real exchange rate depreciations.

The rest of this paper is structured as follows. Section 2 discusses the three saving and growth channels, relating them to the literature, and sets out testable hypotheses. Section 3 3