Asia’s Current Account Surplus: Savings Glut or Investment Drought? Asian Development Review, Vol. 23(1), pp. 16-54

Abstract

Over the last few years economists have started referring to the existence of “global payments imbalances”, reflected in the growing current account surpluses and deficits among different regions of the world (surpluses mostly, but not only, by a number of Asian countries; deficits mainly by the US), together with a substantial accumulation of international reserves (also by a number of Asian countries). This paper examines Asia’s current account surplus from the perspective of the savings−investment gap in order to determine whether the surplus is a result of an increase in savings rates (i.e., a savings glut) or a decline in investment rates (i.e., an investment drought). The analysis indicates that Asian current account surpluses are mostly associated with significant investment declines after the Asian financial crisis. Using data from 1986 to 2003 for a group of Southeast Asian countries, we find that the decrease and stagnation of domestic credit, the creation of excess capacity, and the relative decline of profit rates have contributed to the fall of investment rates across Asia, indicating a return to export-led growth.