The Saving Collapse during the Transition in Eastern Europe

Cevdet Denizer () and Holger C. Wolf

The World Bank Economic Review, 2000, vol. 14, issue 3, 445-455

Abstract: Almost all of the transition economies in Eastern Europe and the former Soviet Union experienced a severe decline in their national saving rates. The saving collapse could be explained by the elimination of involuntary saving, a feature of central planning, or by a change in equilibrium saving reflecting the new economic-circumstances following the end of socialism. The predicted saving rates of market economies with the same fundamentals as the transition economies before the transition are computed to test for the presence of involuntary saving. The results provide some support for the hypothesis of consumption smoothing. Also considered is whether differences in the extent of liberalization affected saving rates in the cross section of transition economies. This is found to be the case: greater liberalization is association with lower saving with a one-year lag. To the extent that liberalization is associated with future growth, this finding is consistent with smoothing in the face of output evolving along J-curve. Copyright The Author 2000. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2000
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