Saving, wealth, and the demographic transition in East Asia

Abstract

This paper assesses the extent to which demographic forces can explain the substantial increases in national saving rates in East Asia over the last few decades, under the strong assumption that saving is motivated by a desire to provide for consumption in retirement. Comparative, steady-state analysis shows that relatively low rates of saving should characterize either pre- or post-transition societies, but that post-transition societies have a much higher demand for wealth than do societies yet to have begun their demographic transition. A dynamic simulation model is used to analyze saving rates during the transition. Using detailed demographic and economic data based on the experience of Taiwan, we show that demographic factors may underlie a substantial portion of the rise in net national saving experienced in the region. Further, our model anticipates a rapid decline in saving as countries approach the end of their demographic transitions and achieve high levels of wealth.