ERI Discussion Paper Series No.63
The High Japanese Saving Ratio:
Will it really decline rapidly

January 1996
Kenichi Kawasaki
(Economic Research Institute, Economic Planning Agency)

(Abstract)

In the 1980s, Japan was the world's dominant supplier of net capital to the world. However, according to life-cycle model simulations, the Japanese saving ratio is expected to show a substantial decline beyond the year 2000 due to the rapid ageing of the population. This paper examines the factors that contribute to the high Japanese saving ratio relative to other countries and discuss outlook for saving trends. Cross-country data shows a correlation between the saving ratios and the rates of economic growth. However, quantitative evidence is not always convincing because the causality is not clear-cut and there are measurement problems which are not negligible. The high saving ratios and rates of economic growth are rather common features in East Asian economies. Other factors commonly found in Asian economies and societies may work. Although, it is thought that saving motives and structural factors such as government policies and institutional and cultural factors have played a relatively less important role in the determination of the saving ratio. A growing body of evidence has put doubt on the validity of the simple form of the life-cycle hypothesis. The demographic patterns for the next few decades are already largely known. However, developments of dependency ratio would be less certain. The Japanese "effective" dependency ratio would not decline as much as the conventional definition suggests. In any event, the saving ratio would largely depend on the extent of how the elderly would continue working and saving. What is more important is the reason why saving shortage occurs. For example, if the ageing of the population imposes further pension contribution and/or tax on domestic firms, this might induce them to invest abroad in order to seek lower costs. Such a distortion on the market by the institutional framework either intentionally or unintentionally should be a matter of concern.


Structure of the whole text

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  2. Abstract
  3. page1
    I. INTRODUCTION
  4. page2
    II. TRENDES IN SAVING AND INVESTMENT
    1. page2
      a. Long-term saving-investment balance
    2. page2
      b. Historical development in household saving
  5. page5
    III. FACTORS AFFECTING SAVING BEHAVIOUR
    1. page5
      a. Measurement issues
    2. page6
      b. Macroeconomic factors
    3. page6
      c. Saving motives
    4. page8
      d. Structurl factors
  6. page12
    IV. THE OUTLOOK
    1. page12
      a. Influence of the ageing of the population
    2. page15
      b. Adequacy of saving
  7. page18
    V. SUMMARY AND CONCLUDING REMARKS
    1. page18
      a. Summary
    2. page18
      b. Concluding remarks
  8. page20
    REFERENCES
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