13 Demographic variables. All three demographic variables under consideration, namely, the urbanization ratio and the young and old dependency ratios, have a significantly negative impact on the private saving rate. The negative effect of the urbanization ratio can be explained along the precautionary-saving motive -- lacking the means to diversify away the high uncertainty of their mostly agricultural income, rural residents tend to save a larger proportion of their income. The negative coefficients on the dependency ratios are consistent with standard life-cycle models of consumption. The null of equality of estimated coefficients is rejected -- the coefficient on the old dependency ratio is significantly larger than that on the young dependency ratio. This likely reflects the fact that the labor force effectively includes a non-negligible proportion of the population aged under 16 (the cutoff point for the young dependency ratio) in many countries.

Both urbanization and the old-age dependency ratio are strongly positively correlated with per capita income (Table 3), so that they contribute to dampen the positive effect of rising incomes on saving noted above. In turn, the negative saving effect of youngage dependency suggests that developing countries with young populations that aim at accelerating their demographic transition and speed up the decline in young-age dependency ratios, may witness a transitory increase in their saving ratios before reaching the next stage of demographic maturity. At this stage old-age dependency rises swiftly --and saving rates level off again. Macroeconomic uncertainty. Like in much of the recent growth literature, in the core specification our proxy for macroeconomic uncertainty is the inflation rate. We find that a rise in inflation has a positive coefficient: a reduction of inflation by 10 percentage points reduces the private saving by over 1 percentage point through this channel. This suggests that increased macro uncertainty (regarding for example nominal incomes, future policies and so on) induces people to save a larger fraction of their income for precautionary motives.”? While one might be tempted to conclude that inflation stabilization could have an adverse effect on saving, it is important to keep in mind that stabilization also affects saving through other indirect channels that are likely to more than compensate for any negative direct effect of inflation. In this regard, there is systematic evidence that lower inflation raises growth (see Fischer 1993, Andrés and Hernando 1997, among many other studies) and, as discussed below, the latter has a major positive effect on private saving. Further, the fiscal-adjustment component of macroeconomic stabilization also has an unambiguously positive effect on national saving, as noted above.

# 4.2 Alternative Estimators

Table 4 also presents results obtained with alternative estimation techniques. The first two columns present static OLS estimates, using respectively the cross-section data (i.e., country averages) and the pooled annual data. Both specifications are often encountered in saving studies. The third column adds the lagged dependent variable to the second. It is important to keep in mind, however, that in all three cases OLS is likely biased and inconsistent because it ignores unobserved country-specific effects and joint endogeneity of the explanatory variables. In the fourth column, the Within estimator is used to control for country-specific effects, but still ignoring joint endogeneity. An