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  Over the last few decades, the world's aggregate savings rate represented approximately 20% of income and, although it has fluctuated in certain periods, this ratio has remained relatively stable. However, such global stability doesn't mean that savings don't vary from country to country and a geographical breakdown of savings actually reveals appreciable variations. In the last twenty years, the average aggregate savings rate of developed countries has gone from 22.9% of GDP to 18.9%.(1) Compared to this fall of four percentage points, and during the same period of 1989-2009, emerging economies as a whole have increased their savings rate by 2.8 percentage points, standing at 24.8% of GDP in 2009.(2)

  This national variability suggests that we should look at the factors that underlie savings in countries in the long term and, more specifically, their most important component, namely household savings. Savings are obviously a variable that determines the resources available for investment, affecting the possible redressing of the global imbalances that have abounded in the last few years and playing a part in determining the equilibrium interest rate. Although an analysis of such issues is beyond the space available for this Box, they all remind us of the key role played by savings in the global economy. One initial determining factor for household savings is demographics. This variable is particularly of concern because we know that industrialized countries are getting older, a trend that, intuitively, should affect savings. Such intuition receives theoretical backing from the so-called life cycle models of savings. These theories establish that, in a society, people of working age are likely to save towards their future retirement. Consequently, those countries with a higher proportion of their citizens aged between 15 and 64 will tend to have a higher savings rate than those with a lower proportion of their population at working age.(3)

  (1) Specifically, these figures are the average national savings rates of Germany, Austria, Canada, Denmark, Spain, United States, Finland, France, Ireland, Italy, Japan, Norway, New Zealand, Netherlands, Portugal, United Kingdom, Sweden and Switzerland.

  (2) Average of the national data from Argentina, Brazil, Chile, China, Ecuador, Egypt, El Salvador, Philippines, Iceland, India, Korea, Malaysia, Morocco, Mexico, Pakistan, Panama, Peru, Dominican Republic, South Africa, Thailand, Turkey and Venezuela.

  (3) The original contribution was made by Franco Modigliani, who started working on this theory in the 1950s. For a complete version, see, for example, Modigliani, 1966, «The life cycle hypothesis of saving, the demand for wealth and the supply of capital», Social Research, 33.

  A second aspect that helps to explain the savings rate is growth in income. Theoretically, the effects of greater economic growth on savings are ambiguous. Let us suppose that an economy is increasing its income, for whatever reason. This extra growth will probably benefit workers to a greater degree and the dependent population to a lesser degree. Given that the former have higher average savings rates than the latter, aggregate savings will rise. On the other hand, if we believe that the motivation to save in the present is to guarantee future consumption and we expect income will be greater at that time than at present, the logical response is to save less now, if permanent rises in income are expected in the future. Whether the first or second effect takes pride of place is a question that can only be settled via empirical analysis.

  A third set of determining factors is related to the country's' degree of financial development. In general terms, the greater a country's financial sophistication, the lower the savings rate. Firstly, because a more advanced financial sector tends to relax restrictions on obtaining credit. Consequently, this availability helps to push a part of savings towards consumption. Similarly, the processes of financial innovation and the development of credit help to generate income as a result of higher asset prices (typically, at times of financial liberalization, of real estate assets). This increase in income is conceptually similar to what we talked about in the previous paragraph. Although, from a theoretical point of view, the joint effect of both channels (greater credit, greater income) might be ambiguous, in practice it has been observed that the greater the financial development, the lower the savings rate in countries.

  These three determining factors primarily affect private individuals in an economy. However, private savings and public savings are not totally isolated spheres. First of all, if the public administration provides fewer essential public goods and services (education, health, pensions, etc.), this will affect private savings, since a part of these savings will go towards such services. Similarly, if the government decides to increase its spending (i.e. reduce public savings), there might be a rise in private savings because economic agents might anticipate income being diverted towards higher taxes in the future. Whether both movements (public spending and greater private savings) completely offset each other or not (in terms of the academic literature, whether there is Ricardian equivalence) can only be determined through empirical work.

  In short, the key issue is to determine empirically the relative weight of each of these causes for the private savings rate. A recent study, developed by economists from the European Central Bank, carries out this very analysis on a representative sample of countries with high incomes and emerging countries.(4) The main findings, which are in line with other previous studies, state that growth in income helps to increase the savings rate; that if a country undertakes fiscal consolidation, the national savings rate goes up, as only part of the greater public savings will reduce private savings; that greater financial development reduces the savings rate; and, lastly, that demographics play a decisive role and in the expected direction: the larger the proportion of dependents, the lower the savings rate.

  This last point deserves more detailed attention as we know that, over the next few decades, the generational profile of the world's population will undergo a sea change. While the proportion of working age population in developed countries is currently around 67.3% of the total population, by 2050 the United Nations' demographic projections predict that this proportion will barely reach 58.4%. In the group of advanced countries, the working age population will go from the current rate of 66.7% to 64.9% by 2050.

  (4) Ferrucci, Gianluigi and Miralles, César, 2007, «Saving Behaviour and Global Imbalances: The Role of Emerging Market Economies». ECB Working Paper No. 842.

  According to the aforementioned study, the demographic variable is therefore more relevant in emerging economies than in developed. In particular, in emerging economies it is estimated that the savings rate falls by half a percentage point for every rise of one percentage point in the dependent population (all those aged under 15 and over 64, as a proportion of the total working age population). However, although this impact is still appreciable in industrialized economies, it is not so great: a drop of 0.2 percentage points in the savings rate for every one percentage point rise in the dependent population. Based on these findings, the study's authors use the United Nations' population projections to calculate the expected savings rates in the coming decades (see the previous graph).

  Assuming this scenario transpires, it's difficult to provide an unquestionable diagnosis of global savings since we're going to see two clearly differentiated phases in the next forty years. Between 2010 and 2025, approximately, the savings rate will rise slightly in high income countries, while growing faster in emerging economies. However, as from 2025 the balance shifts and becomes more unfavourable, with the emerging countries as a whole starting to lose their demographic advantage. At the end of the road, in 2050, the savings rates of both emerging and advanced countries will be lower than the current rates. Auguste Comte used to say that demography was destiny, since it largely determined the economic and social development of the coming decades. If the demographic pressure of global ageing follows the expected course, the destiny of the world's savings will become a huge challenge.

  This box was prepared by Àlex Ruiz

  International Unit, Research Department, "la Caixa"

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