Lab 3B
Exploring Savings Rates
Assignment
This lab investigates the relationships between savings rates and several other country characteristics and considers the implications of your findings for the Solow model. The data for this lab is available in an Excel spreadsheet and a Stata data set on the textbook web page.
1. Calculate the average level of the savings rate (gross domestic savings as a percentage of GDP) in 2009 for all the countries in the data set. Describe the variation in the savings rate across countries. What is the minimum savings rate? What is the maximum?
2. Make a scatter plot that shows the relationship between savings rates and income per capita in 2009. Do poor countries save more or less than rich countries? Give two different reasons that the correlation you find might exist.
3. Make another scatter plot that shows the relationship between the average investment rate over the period 1975 to 2009 and the growth rate of income per capita over this time period. Does this graph support the conclusions of the Solow model?
4. Make a scatter plot that shows the relationship between savings rates and secondary school enrollment rates. Do countries that have higher secondary school enrollment rates have higher savings rates? Explain the relationship you see with economic theory.
5. Make a scatter plot that shows the relationship between savings rates and the number of children the average woman can be expected to have (the fertility rate). In countries in which women have more children, is the savings rate higher or lower? Why might this be true?
6. What relationship would you expect to find between savings rates and age dependency ratios (the ratio of people who are not of working age/working age population.) Graphically show the relationship between the age dependency ratio and the savings rate. (Hint: How would you expect savings behavior to vary with age?) Does the graph support your expectations?
7. Using the results of your graphs, write two paragraphs that summarize your conclusions. How do savings rates vary across countries? What country characteristics are associated with higher savings rates? Can you make policy recommendations based on your results? Relate your conclusions to the Solow model. How would your policy recommendations change if higher income caused higher savings rates and not the other way around? What would the future hold for developing countries in this case?
Excel Hints for Lab 3
See the “Introduction to Excel” instructions for step-by-step instruction on creating scatter plots. Excel hints at the bottom of lab 1 contain instructions for calculating growth rates.
Stata Hints for Lab 3
See the “Introduction to Stata” instructions for step-by-step instructions on creating scatter plots and generating new variables in Stata.