The savings rate is the ratio of savings to GDP. Over the last 55 years, the U.S. savings rate has averaged 17%, compared to 29% in Japan, 23% in Germany, and well over 30% in China.
The question stands—would a higher historical U.S. savings rate have prompted higher GDP growth, and would increasing this rate now bring about sustained faster growth in the future?
The answer is: technically, no. Over the long-run, an economy’s growth rate does not depend on its savings rate, and a higher savings rate would not historically have heightened the sustained U.S. growth rate, nor will it in the future.
While the savings rate does not permanently affect the growth rate over the long-run, it does affect the standard of living and level of output. Thus, increasing the savings rate would lead to higher growth over the short-run and produce a higher standard of living, even though over the long-run we’ll regress (or should) to our natural growth rate.
This is because increasing the savings rate doesn’t affect the long-run growth rate of output per worker, which remains equal to zero, but it does increase the logn-run level of output per worker. As output per worker increases to a new higher level in response an increase in the savings rate, economies will enter a period of positive growth, and this growth will continue until the new economic equilibrium, or steady state, is reached. We can derive this and have looked at similar relationships in articles like that of the Solow Growth Model (see here), but will not do so in this article in the interest of brevity.
Summed: increasing the savings rate does not raise rate of growth over a sustained (long-run) period of time, but can prompt growth in the short-run.
Hope that helps, and leave any questions in the comments! Check out my other articles on economics here (useful for studying, or just learning).
