Saving, Investment and Growth in the Industrialized Countries: An Econometric Investigation

Abstract

This paper is concerned with the joint determination of savings, investment, interest rates and economic growth in the industrialized countries over the last three decades. The key economic variables which concern us are plotted on figures 1–4 and are by now familiar to students of the world economy. Economic growth was buoyant through the 1960s, sluggish and volatile through the 1970s and more stable through the 1980s. World interest rates fell during the 1970s, but in the 1980s they surpassed their level of the 1960s. Investment performed strongly during the 1960s, weakly during the 1970s and weaker still during the 1980s. Private sector savings largely mirrored investment throughout the entire period.

I am grateful to Udi Nissan and Laura Bemporad for their excellent research assistance.

The data used for the analysis in sections 3 and 4 were taken from International Financial Statistics (IMF) and Supplement 8. Data for central government consump­tion for 1984–1988 were taken from Main Economic Indicators (OECD) for the OECD as whole. The “industrial countries” are represented by code 110.

The following definitions are used: Inflation = rate of changes in GDP deflator; Terms of trade = export unit value index/import unit value index; Interest rate = GDP weighted average of Treasury bill rates (60c) for US, UK, West Germany, France, Canada, Sweden and Japan; Investment/GDP = world summary tables; Savings/ GDP= world summary tables; Fiscal deficit/GDP = world summary tables (1972–1988).

Advise: the numbers in square brackets refer to the Bibliography in appendix.