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

Emerging Issues on the World Economy 325
of exports. How much in excess depends on elasticity, on the response to the
demand for investing, the U.S. elasticity differential, and the level of the elasticity
of domestic investment with respect to interest rates. We simple import a lot
more than we export, because there is no way the poor manufacturers could do
otherwise—the exchange rate moved against them and they could no longer sell.
They had to import the capital. The exchange rate had to move against them.
By the way, it was reinforced by the regulation that it has a tremendously high
exchange rate against the dollar, in part because of the U.S. deficit. As the dollar
has returned pretty much to normal levels, our tremendous deficit has disappeared.
In fact during one quarter last year the balance of trade showed surplus,
but this did not last. We still had a deficit, and not negligible, about $20 billion.
From $160 billion it came down to $20 billion.
Of course, in my view the exchange rate is still too high. Why is it too high?
Because the deficit remains too high. If we take on less deficit in order to be able
to reverse the process with smaller deficit, we must lower interest rates, in which
case we will be pushing out capital instead of attracting it. This phenomenon does
not imply that there is anything inferior or incapable or less vigorous. So from
this point of view the situation has now changed. There is nothing new in our
savings over the last few years. The reason Japan saved more is simply that saving
essentially depends on growth. The more you grow the more you save—with the
exception of Singapore. No matter how fast you grow, you save 40 percent. But
everywhere else this law applies. There is plenty of evidence by which Japan’s
high saving rates are largely explained.
Investment has declined appreciably. The net investment has about halved,
which presumably has something to do with growth. The question of the extent
to which investment affects growth is delicate. I have done work recently and am
convinced that there is evidence that growth does depend on investment. In the
case of Japan the very high savings rate helps. In my theory, the relation between
growth and saving has nothing to do with individual decisions. It is not the case
that when there is rapid growth people decide to invest and to save more. It is,
instead, a mechanical effect. The faster you grow, the more you save. This has
nothing to do with upbringing or any such feature. In the case of Japan, one
important feature is that of bequest.
There was one further topic I planned to discuss, an aspect of what might
happen in the financial market—the whole question of globalization. But in deference
to punctuality I will close now.