Over the past three decades the world has witnessed a steady decline in its overall saving rate. This trend decline conceals widely diverging regional saving patterns, particularly within the developing world: saving rates have doubled in East Asia, stagnated in Latin America, and collapsed in sub-Saharan Africa. These saving disparities have been closely reflected in the respective growth performances: across world regions, higher saving rates have come with higher income growth.

Why are these saving disparities of any interest? From a theoretical viewpoint, there is in principle little reason to expect saving rates to behave similarly across countries. In an ideal first-best world, different saving rates could just be the result of optimal intertemporal consumption decisions when preferences, technology, demographics, and/or other factors vary across countries. In the real second-best world, however, intertemporal choices are subject to a host of externalities, market failures, and policy-induced distortions that in many countries are likely to cause saving to differ from its welfare-maximizing levels. Of course, the result need not be too low a level of saving.