"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

Recent Declines in the Savings Rate 127
of l of just about 0.3, and that one dollar of government deficit reduces national
saving by 77 cents, when according to Barro [4] the effect should be no more
than some 15 cents. The coefficient of the other variables are somewhat reduced,
especially that of labor force participation, which is nearly halved.
The next battery of tests presents results for cross-section tests for each of the
decades. In these tests, the results are broadly consistent with those reported
above, but, presumably because of the much smaller samples, and apparent multicollinearity,
the estimates are less stable and tend to be a good deal less significant.
We report one single equation corresponding to line 5, i.e. with all the
variables and population weighted. Line 7 of table 4.3 is based on the first decade.
The problem of instability, and multicollinearity, is clearly visible in the results.
The point estimates of the coefficients other than that of GS are not very different
from those of line 5 but the last three variables are all insignificant, despite
the high R 2 , and insignificantly different from the coefficients in line 5. The coefficient
of GS is the one that is appreciably more negative and thus less consistent
with LCH. It implies that a one dollar increase in government deficit would be
offset to the extent of 77 cents by higher private saving. However, this result is
not a serious challenge to LCH. In the first place it is unique in the battery of
tests, and in the second place the estimate is not very reliable: it has a standard
error of 0.33. Thus while it is not significantly different from the value of 0.85
called for by Barro, it is also not significantly different (even at the 10 percent
level) from the value implied by LCH of around 0,25. The coefficient estimate
is just too unreliable to permit a sound conclusion.
In line 8, covering the ’70s, most coefficients, including that of GS, are back
at a level close to those of line 5, expect possibly fior that of Dependency. The
remaining regression for the ’80s is the least satisfactory. All the coefficients are
generally different from (5), but the estimates are subject to such large error that
the differences from the estimates of line 5 are not significant.
2.3 First Difference Tests
The purpose of the tests reported in the last four lines of table 4.3 is to inquire
how well the LCH can account for the large changes in saving that occurred
between the ’60s and ’80s. In this case there are no solid grounds for expecting
that the coefficients will be very close to those obtained from the level cross
section like lines 5 and 6 because of the different structure of errors; in particular
one can expect that the difference in a given variable between countries will
tend to correspond more nearly to a permanent difference than might be the case
with differences for one country, between two relatively close points in time.
We found in fact systematic differences between the coefficients of a magnitude
that was rather surprising. In particular the coefficients of the two