1713. Why Did Colombian Private Savings Decline in the Early 1990s?

Alejandro López
(January 1997)

The sharp drop in private savings in the 1990s in Colombia can be attributed to a decline in private disposable income and, to a lesser extent, to growth in consumption. The sharp drop in private savings in the 1990s in Colombia can be attributed to a decline in private disposable income and, to a lesser extent, to growth in consumption. The permanent decline in private disposable income in Colombia between 1950 and 1990 is closely linked to tax increases. This trend was accentuated in the early 1990s by a reduction in corporations' gross operating surplus.

Contrary to the usual hypothesis, López shows that in the 1990s private consumption had a relatively minor effect on national savings. He highlights two findings:

• Private consumption's recent behavior can hardly be called a boom. It declined throughout the second half of the 1980s before finally showing an upturn in 1992 equivalent to 2 percent of gross national product.

• Consumption of durable goods after trade reform cannot be blamed for the decline in private savings. In fact, savings began falling in 1988 and, until 1993, trade reform did not cause a stock adjustment of durable goods.

This paper — a product of the Macroeconomics and Growth Division, Policy Research Department — is part of a larger effort in the department to assess the determinants of saving. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Emily Khine, room N11-061, telephone 202-473-7471, fax 202-522-3518, Internet address kkhine@worldbank.org. (34 pages)

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