What is the Relationship between National Saving and Investment in Latin America and the Caribbean?

Produced by: 
Inter-American Development Bank
Available from: 
August 2015
Paper author(s): 
Eduardo Cavallo
Mathieu Pedemonte
Topic: 
Financial Economics
Year: 
2015

Using panel co-integration techniques and a comprehensive dataset covering the period 1980-2013, this paper finds a positive and significant correlation between national saving and domestic investment rates in Latin America and the Caribbean (LAC). The estimated correlation is approximately 0.39; i.e., for every 1 percentage point of GDP increase in national saving, domestic investment increases by 0.39 percentage points on average. There are however, three nuances to the headline result: i) the estimated correlation has been declining over time; ii) the regional average hides a large degree of intra-regional heterogeneity; and iii) the estimated coefficient is largest amongst the biggest economies in the region. It is concluded that low national saving rates remain a binding constraint for capital accumulation in LAC.

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