4 on estimators that attempt to control for heterogeneity and simultaneity, two problems that likely plague most previous empirical studies.

# 3.1 The Data

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Our basic data set draws from the saving database recently constructed at the World Bank, and described in detail in Loayza, Lopez, Schmidt-Hebbel and Servén (1998a). To our knowledge, such database represents the largest macroeconomic data set on saving and related variables presently available. It comprises a maximum of 150 countries and spans the years 1965-1994. The data have been subject to extensive consistency checks, and hence they also represent an important improvement in terms of quality relative to other existing data sets.° The data set excludes the countries for which we found inconsistencies in basic National Account, fiscal and financial data. These data limitations prevented the construction of reliable saving measures, their disaggregation into public and private saving, and/or the calculation of the inflation adjustments for the latter. For some of the key . variables in this paper, the effective data coverage in countries and years is therefore limited. Nevertheless, for the "core" private saving regression, presented below, we initially count with 1,254 complete observations spanning the years 1966-95.

From this initial sample, we decided to exclude the observations corresponding to high inflation episodes. We base this decision on the fact that high inflation distorts severely measured public and private saving (particularly the inflation-adjusted saving measures).° Moreover, in general high inflation renders National Account statistics largely unreliable. For practical purposes, we set a threshold of +/- 50 percent annual inflation. We apply the same threshold to the real interest rate, which in cases of high inflation is mostly driven by inflation. For the "core" specification, these data adjustments lead to the direct loss of 49 observations.’ In order to achieve a minimum time-series dimension, as well as to reserve sufficient observations to implement our instrumental-variable estimators described below, we limit our sample coverage to those countries with at least 5 consecutive annual observations. After all these adjustments, the sample for our "core" specification consists of 1,148 observations. Since four observations per country must be set aside for the construction of instruments, the "core" regression sample consists of 872 observations for 69 countries — 20 industrial and 49 developing. As explained below, we also estimate regressions for the national saving rate and for private saving rates derived from a narrower definition of the public sector. For these regressions, the available sample comprises about 1,800 annual observations for 98 countries in the case of national saving rates and between 750-900 observations for 69countries in the case of private saving rates, depending on the precise definition of the private and public sectors.* This sample coverage exceeds that of Edwards (1996), who considers 32 countries, and Masson, Bayoumi and Samiei (1995), whose sample includes 61 countries.

Finally, note that these panel data sets are heavily unbalanced, with the number of time-series observations varying considerably across countries. The top panel of Table 1