The pace of income catch-up in emerging countries and savings rates

Emerging countries’ per capita income catch-up with the level in OECD countries depends on many variables: the population’s level of education, the quality of political governance, the level of corruption , the presence of raw materials in the country. But we think that the pace of catch-up depends crucially on the country’s savings rate: a high savings rate makes it possible to finance large public and private investments, prevents external deficits and therefore avoids currency crises. We show that gaps between savings rates explain most of the divergence in the pace of income catch-up across a sample of emerging countries. This allows a distinction to be drawn between low-saving emerging countries (for example Brazil, South Africa, Mexico, Argentina, the Philippines, China) and high-saving emerging countries (for example China, South Korea, Malaysia, India, Vietnam, Indonesia).