Saving Glut or Investment Dearth?: Lessons for the SDGs from the High-Performing Asian Economies

Abstract

This paper reconsiders the popular contention that excess savings caused current account surpluses in developing economies from 1998–2008. This view, known as the “global saving glut” hypothesis, posits that excess savings from developing economies flooded international capital markets with loanable funds, depressing long-term interest rates and widening current account deficits in rich countries. Former Federal Reserve chairman Ben Bernanke articulated this viewpoint in a 2005 speech, arguing that after the 1997–98 Asian financial crisis, capital flowed “uphill,” from developing countries into rich economies. According to Bernanke, after the Asian financial crisis, developing economies mobilized and exported their savings abroad, thus causing them to run current account surpluses and causing current account deficits in advanced countries such as the United States and the United Kingdom to widen.