Saving behaviour of some developing countries in Southeast Asia

Abstract

This paper employs Autoregressive-Distributed Lag model to detect the cointegrating vectors amongst three variables that are gross domestic saving per capita, gross domestic product per capita and foreign direct investment being stationary at the mixture of I(0) and I(1) in the period 1989 – 2012. The results do not support for the hypothesis as Solow (1956) states in which domestic saving and foreign direct investment are sources for domestic investments, then push economic growth. The long run relationship amongst these indicators is consistent with some recent empirical studies for the case of developing countries. That is, the long run causal direction running from economic growth to domestic saving. Additionally, foreign direct investment does not cause economic growth in both short and long run, but tends to reduce domestic saving in long run. Furthermore, combining the estimated results with some statistical measurements of demographic change in total population and financial market development gives to us evidences in which financial market in Vietnam is still weak, thus does not strengthen the channel of domestic private saving accumulation, especially from huge amount of rural population. FDI has increased annually, but it only takes a small percentage in GDP. As a result, there is no evidence to support for the nexus from saving to growth. GDS increasing annually is explained by a rise of GDP, and perhaps by some positive demographic change in total population. Last but not the least, in long run FDI tends to reduce domestic saving due to ineffective channel of domestic capital accumulation, especially for Vietnam stock market. Then, it casts doubts on an assumption of Solow about the positive nexus running from saving to growth, especially for developing countries.