Saving Behaviour in OECD Countries: Evidence from Panel Cointegration Tests

We use recently developed panel cointegration and integration tests, which allow for heterogeneity in parameters and dynamics across countries, to examine the long‐run determinants of aggregate private saving rates in a dynamic panel of OECD countries during the post Second World War period. These techniques are more powerful than the conventional tests and overcome the inconsistency problem of the fixed‐effect estimator typically employed in cross‐country studies of saving behaviour. We employ a number of alternative cointegration methods and also construct a private disposable income series, while previous studies on private savings tend to proxy income with GDP. We find strong evidence for the existence of a long‐run equilibrium saving function based on an extended version of the life‐cycle hypothesis which allows for the influence of liquidity constraints. Our results suggest a number of significant determinants of saving rates, but the parameter estimates vary significantly across countries.