What accounts for the Chilean saving 'miracle'?

This paper examines the recent saving performance of the Chilean economy in the light of its long-run (1940-96) trends. The first conclusion that can be derived from the data is that most of the increase in private saving since the mid-1980s is due to business saving. Household saving turns out to be a stationary variable with zero mean. Since business saving has a unit root, households do nor seem to take the saving of firms into account when making their own saving decisions. Within the theoretical framework of a model of business investment with liquidity constraints, we estimate a VAR for business saving, private investment, public saving and foreign saving (the current account deficit). We are able to determine that business saving is unaffected by public saving, but that, in the long run, foreign saving and business saving are perfect substitutes. Private investment, business saving and foreign saving are jointly determined. The policy conclusions are that policies that stimulate investment are likely to lead to an increase in private saving, that policies aimed at raising household saving will be ineffective, and that increases in public saving are very powerful for increasing domestic saving in the long run.