Countries in the hamster wheel?: Nurkse-Duesenberry demonstration effects and the determinants of savings

Throughout the world, stable regional patterns of private savings are hard to come by. For example, Latin America's saving rates have been, for a long time, below those of countries with similar levels of development. Those same savings rates have been growing lately, in almost as intriguing manner. These stylized facts remain intellectual puzzles and development policy challenges. In addition, while it may be true that savings often seem to follow rather than lead the growth process, it has been shown that in the long run, it is not possible to grow sustainably with domestic savings persistently below investments. For these and other scientific considerations, understanding the determinants of savings is an important research objective that has previously escaped analysts that tried to make sense of results from varied, distinct models. This article explores one set of variables much aligned with the rise of behavioral economics, which could add to the literature on the macroeconomics of savings. Specifically, the article revisits the hypothesis that, as there is evidence of emulation patterns between consumers, there might be international (macroeconomic) 'emulation'. The interdependence would arise from consumers basing their consumption decisions on relative rather absolute income, their choices incorporating increasing amounts of information about consumption standards in rich countries, and this pushing up propensities to consume and down savings ratios. We test demonstration effect theories exploiting recent international data on savings, incomes, and means of exposure of global consumers to the evolution of savings patterns. With the resulting country panels, we find some evidence in favour of demonstration effect for the period when television was spreading around the world and much consistent with the same effect for the more recent times when the Internet was rapidly becoming a preferred means of discovering foreign consumption standards. We speculate about the conjectural mechanisms that could make sense of the results.