Determinants of the adjusted net saving rate in developing economies

Abstract

The adjusted net saving rate, initially known as the genuine saving rate, was first published by the World Bank in the late 1990s as a more comprehensive measure of national saving and one more indicative of sustainable development. The adjusted net saving rate incorporated not just physical capital depreciation, but natural capital depletion and environmental damage, as well as including some human capital formation. In this paper, using a cross‐section of developing economies for 2001–2006, determinants of the adjusted net saving rate are estimated. For comparison, the same determinants for the gross national saving rate are estimated. Also, a basic Solow growth model is extended to incorporate natural resources and to justify a more comprehensive measure of savings, such as the adjusted net saving rate, for modeling economic growth. The two measures of savings are then compared as determinants in estimations of economic growth. Understanding the determinants of the adjusted net saving rate is useful for policies to promote sustainable development.