The savings rate: A key feature of emerging countries

W e argue that the national savings rate is the key feature of emerging countries. The countries with a low savings rate must either invest little or run up external debt and be hit by successive currency crises, which come hand in hand with sharp interest rate rises. In either case, the countries with a low savings rate have weak growth. A comparison across emerging countries shows that a low savings rate is associated with: A large external deficit and high external debt; Exchange rate depreciation and high interest rates; Weak investment and growth. Investors should therefore be cautious about emerging countries with a savings shortfall.