The effects of dependency ratio and income growth on savings level

The effects of dependency ratio and income growth on savings level in the developing countries in South East Asia from 2000 to 2011 (Cambodia, Indonesia, Lao PDR, Malaysia, Philippines, Thailand, Vietnam)

The effects of dependency ratio and income growth on savings level in the developing countries in South East Asia from 2000 to 2011 (Cambodia, Indonesia, Lao PDR, Malaysia, Philippines, Thailand, Vietnam)

Dissertation Chapter: Results

Introduction

The main objective of this study is to examine the influences or effects of dependency ratio and income growth on the saving levels with reference to developing nations in South East Asia between 2000 and 2011. The research focuses on nations such as Cambodia, Lao PDR, Philippines, Malaysia, Vietnam, and Indonesia. This is through utilization of the gross saving as the dependent variable while GDP growth and the age dependency ratio as independent variables. There are various reasons illustrating the fact that dependency ratio is central towards explaining or demonstrating differences in savings behavior and economic growth across the nations. The theoretical underpinnings with reference to this belief relate ti the life-cycle hypothesis. It is critical to illustrate that economic agents possess negative savings when young. In addition, they have low or no income, and positive savings during their productive years. Moreover, these economic agents have negative savings when they are old or retired from their productive roles in the growth and development of the economy.

Effects of Age Dependency on Savings Levels

Children, as economic agents, constitute a heavy charge for the parents in spite of the fact that they do not contribute to production. Increase in the production or generation of children in the society would indicate a reduction in the private savings rate. Similarly, an increase in the proportion of the elderly within the population of developing nations will hamper the aggregate savings rate. This is because of the tendency of the retired economic agents to project negative saving.

Contrary to the expectations, increases in the dependency ratio might have significant upward pressure on the government spending with reference to activities and projects such as education and health programs essential in the improvement of the quality of lives of the citizens. The consequence of this approach is the reduction in the public savings in accordance with the maintenance of the status quo of the fiscal policies within the context of the relevant nation. This is an indication that the age structure of the population within a nation is vital in the illustration of the overall national savings rates (Rusnák, M 2013, p. 246).

Productivity growth, which is associated with dependency ratio, has a strong and positive effect on the saving levels. This is in accordance with the implications or influences of the theory of savings behavior. It is vital to understand that the relative price of investment goods is positive, but small and insignificant from a statistical perspective. In spite of this development, the estimated coefficient does imply that higher investment prices will have an opportunity and tendency to depress the real saving rate defined as the S/RPI (Hamadi,, 2011, p. 32).

In addition, the age distribution coefficients for investment are strongly concentrated in the context of the younger tail of the age distribution. This concentration reaches its peak between the ages of 15 and 19 years. Moreover, the concentration turns negative between the ages of 40 and 44. This pattern is in accordance with the intuition that the young and the growing population require substantive additions to the social overhead capital. It is also critical to note that the positive coefficient for the last period of life (70 year and above) is insignificant from a statistical perspective. This makes it ideal not to reject the null hypothesis illustrating that the age distribution coefficients remain flat after the age of 60 years (‘GDP and the Economy’ 2011, p. 4).

In the case of Cambodia, the age dependency ratio was approximately 80.6 in 2000. This is an indication that the saving rate or level of insignificant from a statistical perspective. The majority of the population during this period included the youths. From this analysis, Cambodia experienced low saving rates under the influence of high age dependency ratio. The age dependency ratio of Cambodia has experienced a rapid reduction in the period of 11 years. This is evident in the rapid growth or increase in the saving levels within the nation as more of the population of the country become productive toward the achievement of the growth and development of the economy (Jilani et al, 2013, p. 257). In the case of Indonesia, it is vital to note the age dependency ratio has been consistent between 2000 and 2011. This is through a projection of approximately 54 percent in the age dependency.

It is vital to demonstrate that Indonesia experiences stable population growth thus an extensive rate of savings towards the growth and development of the economy. Lao PDR proves to have the highest age dependency ratio in which most of the population is children. This is an indication that children contribute less towards the development and growth of the economy thus depending greatly on the services of their parents. This reduces the rate or levels at which their parents save for the future projects and activities. From this region, Thailand proves to have the lowest tendency ratio of about 38 by 2011. This is vital towards increasing the growth and development of the economy as consumers and economic agents have adequate opportunities to save part of their income. Vietnam has also realized rapid reduction in the age dependency ratio between 2000 and 2011. This is evident in the lowest age dependency of about 42 percent thus massive contribution to the growth and development of the economy (Dhanasekaran, 2010, p. 87).

GDP and Saving Levels

There is a close relationship between savings and GDP growth or the economic. The economic growth of a nation is the economy’s capacity to increase the productivity of services as well as goods in comparison to the previous year of operation. GDP is vital in the comparison of the economic growth between two or more nations across the globe or within the relevant region. Economic growth or development in the form of GDP growth has the ability and tendency to increase personal income and income per capita with reference to consumption. This indicates that the economic growth or GDP growth has the ability to influence the disposable income of an individual with an upward pressure (Andrei & Huidumac-Petrescu, 2013, p. 47). This provides an opportunity for the individuals or economic agents to save the excess income under the influence of GDP growth. In most cases, government agencies offer various saving and investment schemes in relation to the increase in the GDP. The saving and investment mechanisms or schemes are always exempted from taxation system thus an increase in the number of economic agents involved in such activities. This is an indication that the consumers or economic agents with the factors of production will engage in saving and investment activities.

In the context of South East Asia, there is a positive relationship between the GDP growth and the gross saving. For instance, in the case of Vietnam, an increase in the GDP growth leads to an increase in the gross saving. This makes it vital to illustrate the influence of the GDP growth in increasing the individual income. An increase in the disposable income is vital in increasing the ability and behavior of the economic agents to engage in the saving and investment schemes and mechanisms by the governments and private sectors. This is vital in enhancing the growth and development of the economy with reference to nations such as Indonesia and Vietnam in the southern part of Asia. The savings are applicable in enhancing the growth and development of the economy of the relevant nations. This is evident in the increase in the number of employment positions or opportunities as well as improvement in the living conditions of the economic agents in the relevant nations.

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Appendix

GDP

Nation/Time 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cambodia 8.76 8.03 6.68 8.50 10.34 13.25 10.77 10.21 6.69 0.08 5.96 7.06

Indonesia 4.9 3.6 4.4 4.7 5.0 5.6 5.5 6.3 6.0 4.6 6.2 6.4

Lao PDR 5.7 5.7 5.9 6.0 6.3 7.1 8.6 7.5 7.8 7.5 8.5 8.0

Malaysia 8.8 0.5 5.3 5.7 6.7 5.3 5.5 6.2 4.8 -1.5 7.1 5.0

Philippines 4.4 2.8 3.6 4.9 6.6 4.7 5.2 6.6 4.1 1.14 7.63 3.6

Thailand 4.7 2.1 5.3 7.1 6.3 4.6 5.0 5.0 2.4 -2.3 7.8 0.07

Vietnam 6.7 6.8 7.08 7.3 7.7 8.4 8.2 8.4 6.3 5.3 6.7 5.9

Gross Savings

Nation/Time 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cambodia 509. 7 M 656.7 M 704 M 689.6 M 849.9 M 1279 M 1391 M 1802 M 1612 M 1452 M 1360 M 1253 M

Indonesia 411 M 339 M 326 M 701 M 631 M 744 M 1016 M 1125 M 1345 M 1680 M 2260 M 2709 M

Lao PDR 42.2 M 49.1 M 17.2 M 13.6 M 16.2 M 29.5 M 67.9 M 82.0 M 97.0 M 119 M 128 M 142 M

Malaysia 336 M 229 M 330 M 384 M 438 M 528 M 631 M 750 M 889 M 674 M 844 M 996 M

Philippines 188 M 184 M 198 M 210 M 238 M 275 M 317 M 390 M 445 M 421 M 545 M 569 M

Thailand 372 M 329 M 349 M 403 M 459 M 491 M 621 M 825 M 833 M 788 M 987 M 1062 M

Vietnam 97 M 102 M 111 M 123 M 149 M 189 M 219 M 236 M 266 M 288 M 339 M 408 M

Age Dependency

Nation/Time 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cambodia 80.5 77.4 74.7 72.4 70.2 67.92 65.65 63.32 61.25 59.57 58.39 57.71

Indonesia 54.6 54.04 53.71 53.56 53.53 53.56 53.6 53.69 53.75 53.69 53.46 53.03

Lao PDR 89.04 87.4 85.6 83.5 81.2 78.9 76.6 74.2 72.02 69.94 68.08 66.40

Malaysia 59.13 57.85 56.56 55.30 54.08 52.93 51.8 50.8 49.9 49.04 48.19 47.40

Philippines 71.65 70.95 70.26 69.55 68.83 68.07 67.2 66.4 65.6 64.7 63.9 63.08

Thailand 44.39 43.99 43.7 43.6 43.3 42.95 42.32 41.5 40.66 39.88 39.27 38.88

Vietnam 61.27 59.12 56.98 54.86 52.80 50.80 48.87 47.04 45.39 43.99 42.91 42.16