Institutions Private Savings And Growth

Author : Botagoz Sabirovna Kalkenova
Publisher :
ISBN 13 : 9781124600673
Total Pages : 58 pages
Book Rating : 4.6/5 (6 download)

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Download or read book Exploring the Political Economy of Diverging Private Savings Patterns in Selected Transition Economies written by Botagoz Sabirovna Kalkenova and published by . This book was released on 2011 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis has investigated the differences of private savings determinants in fifteen selected former Soviet Union countries: Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Lithuania, Latvia, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. On the surface, savings rates in resource rich countries with autocratic political regimes tend to be higher than those in countries with more liberal, democratic political cultures. For that reason, this analysis was guided by the idea that diverging private savings rates cannot be solely explained by differing socio-economic fundamentals, but rather can be attributed to the nature of the political regimes shaping socio-economic fundamentals. In this regard a critical assumption underlying the line of argument was that different political regimes provide people with different opportunities and incentives to save. Taking this perspective, this thesis tried to extend on the existing literature on savings rates in transition economies, which has primarily viewed savings decisions as a function of socio-economic factors (e.g. GDP per capita, annual GDP growth). To analyze the empirical relationship between private savings and the quality of political institutions and regime types in the selected fifteen post-soviet countries, a two-way fixed effects panel model covering the period between 1998 and 2008 was applied. The data for this study has been obtained from different sources such as the World Bank, the International Monetary Fund, the Polity IV Project, the European Bank for Reconstruction and Development, and British Petroleum. Research findings indicate that financial and capital account liberalizations may increase domestic activity with a positive effect on overall economic income, and thus private savings, but it also can be a driver of short-term and non-sustainable financial acceleration. Striking a balance on this double edged sword of financial liberalization depends rather on the quality of market governing institutions, i.e. regulatory quality, than political regime type. Substantially lower and decreasing private savings rates in democratic countries of the former USSR can be attributed to popular pressures for immediate consumption. This has been primarily financed by a rapid influx of foreign bank capital. In contrast, well-endowed countries characterized by more autocratic forms of governance seem to have relied more on repressive financial governance and resource revenues to safe-guard political and economic stability. From a public policy perspective, several immediate implications arise. It would seem a natural choice for resource poor economies to implement taxes aimed at cooling an excessive expansion of consumption credit and thereby to direct capital inflows toward more productive ends in the investment sector would present a natural choice. In addition, raising social security contributions may slow down households' consumption (in this case, household disposable income will be lower), although it may also undermine households' ability to save. For resource rich economies, research findings indicate that these economies could reduce forced private savings and increase current consumption levels, spurring domestic demand and overall economic welfare for their citizens. However, as this study has shown, financial liberalization can come at the expense of deteriorating domestic private savings rates, if not accompanied by substantial macroeconomic and regulatory reform.