DP11314 Emergence of Asia: Reforms, Corporate Savings, and Global Imbalances
One of the explanations for global imbalances is the self-financing behavior of
credit-constrained firms in rapidly growing emerging markets. We use an extensive
firm-level data set from several Asian countries during 2002–2011, and test the micro
foundation of this theory by estimating the effect of an exogenous change in credit
constraints, resulting from financial reforms, on firms’ saving behavior. As predicted,
after financial reforms, firms who were credit-constrained previously decreased their
savings more (or increased their savings less) relative to unconstrained firms. However,
this firm-level effect did not lead to a decrease in aggregate corporate savings as
conjectured by the theory. Our sector level regressions show that corporate savings
increased after financial reforms, and more so for sectors more dependent on external
finance. The current account surpluses also did not register a significant deterioration
after financial reforms, consistent with our findings on sectoral and aggregate corporate
savings.
