Demography and cross-country differences in savings rates: a new approach and evidence

This paper includes both dependency thesis and pension motive for savings to explain the large differences in cross-country savings rates. The two demographic factors are incorporated into an overlapping generation model, and the steady-state savings rates for a sample of 109 countries are computed. Both demographic factors can explain up to 68% of the dispersion in the cross-country savings rates. Furthermore, if the expenditure burden is sufficiently high, fertility has a greater impact on cross-country savings rate differences than longevity does. This study also satisfactorily explains the large gap in savings rates between the high- and low-income countries.