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The savings collapse during the transition in Eastern Europe

Cevdet Denizer ()

No 2419, Policy Research Working Paper Series from The World Bank

Abstract: The authors assess the presence and extent of involuntary savings by comparing the predicted savings rates of market economies with those of the pre-transition economies. On balance, predicted savings rates fell short of actual savings rates, especially for the former Soviet Union and the Baltics -- providing some support for the notion of excessive pre-transition savings. Comparing the savings behavior of market economies and transition economies, they found substantial similarities, except for a negative link between savings and GDP growth. As the fastest-growing transition economies are at the bottom of the adjustment J-curve, the finding is consistent with consumption smoothing. Finally, they explored whether differences in the extent of economic liberalization affected savings rates in the cross-section of transition economies. They found that liberalization is associated with lower savings, with a one-year lag. To the extent that liberalization is perceived as an indicator of likely future growth, this behavior is consistent with smoothing in the face of a J-curve change in output.

Keywords: Environmental Economics&Policies; Banks&Banking Reform; Insurance Law; Economic Theory&Research; Rural Poverty Reduction; Insurance&Risk Mitigation (search for similar items in EconPapers)
Date: 2000-08-31
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