Why Export Booms Raise Saving in Some Countries but Fuel Consumption in Others

The paper shows that under dollar-priced trade, export booms raise national saving only when exchange rates stay stable and profits accrue to exporters, not consumers. It explains why similar export windfalls produce very different outcomes across countries, reshaping debates on saving, exchange rates, and global imbalances.

When a country’s exports surge, because of a commodity boom, a manufacturing breakthrough, or better access to global markets, the expectation is often straightforward: more exports should mean more savings, more investment, and stronger long-term growth. Yet history shows that export booms can lead to very different outcomes. Some countries turn them into lasting economic gains, while others experience short-lived consumption sprees. A recent IMF working paper by economist Bas B. Bakker explains why, drawing on research at the International Monetary Fund and insights from institutions such as the Bank for International Settlements and the World Bank. The answer, the paper argues, lies in exchange rates and who captures export windfalls under today’s dollar-dominated trading system.

The Hidden Power of the Dollar

A key feature of modern trade is that most exports around the world are priced in U.S. dollars, regardless of where goods are produced or sold. This “dominant-currency pricing” changes how exchange rates work. In textbook economics, a stronger or weaker currency mainly affects export volumes by making goods cheaper or more expensive abroad. In reality, when prices are fixed in dollars and quantities adjust slowly, exchange rates do something different: they change how much exporters earn in their own currency.

If a country’s currency stays broadly stable during an export boom, higher dollar revenues translate almost directly into higher income for exporters at home. If the currency appreciates, the same dollar revenues convert into fewer units of local currency. Exporters’ profit margins shrink, even if exports are booming in dollar terms. This simple mechanism turns the exchange rate into a powerful tool that determines who benefits from export growth.

Producers vs. Consumers: A Distribution Story

This is where saving comes in. Firms and households save very differently. Exporting firms tend to save a large share of additional income through retained earnings, while households usually spend more of any income gains. When export windfalls raise exporters’ local-currency profits, national saving rises. When those windfalls are instead passed on to consumers through cheaper imports, saving rises much less.

The paper’s central claim is therefore straightforward: national saving responds to export income measured in real local currency, not to export income measured in dollars. Dollar revenues reflect global market value, but local-currency revenues reflect domestic purchasing power and profitability. This distinction explains why similar export booms can lead to very different saving outcomes.

Lessons from China, Brazil, and Peru

The contrast between China and Latin America in the 2000s makes this logic clear. After joining the World Trade Organization, China’s exports surged. Crucially, China kept its real exchange rate relatively stable. As a result, booming dollar exports translated into soaring local-currency profits. Corporate savings rose sharply, fiscal revenues improved, and China’s national saving rate jumped by nearly ten percentage points of GDP in just five years. After 2007, when the currency appreciated, exporters’ margins were squeezed and savings declined.

Brazil and Peru both benefited from the global commodity boom, but with very different results. Brazil experienced a strong currency appreciation and expanded public spending. Much of the export windfall flowed into consumption, exporters’ profitability weakened, and national savings stayed flat. Peru, with a more stable exchange rate and tighter fiscal policy, preserved exporters’ margins. Saving rose sharply, and investment followed, especially in tradable sectors.

Evidence Beyond Case Studies

These stories are not exceptions. Looking at data for 42 large economies over four decades, the paper finds a clear pattern: when real local-currency export income rises by one percentage point of GDP, the national saving rate rises by about 0.27 percentage points. Once this local-currency measure is included, dollar export income adds little explanatory power. Saving also responds quickly, within the same five-year periods, showing that the effect works through income and profitability rather than slow-moving investment cycles.

Natural experiments reinforce the point. Argentina’s sharp devaluation in 2002 instantly boosted exporters’ local-currency revenues under dollar pricing, and national savings jumped almost overnight, even though export volumes barely changed. The timing makes it clear that profitability, not long-term structural change, drove the response.

Why This Matters for the Global Economy

The paper offers a fresh way to understand big global debates. The “global saving glut” of the 2000s appears less like a mystery of excessive thrift and more like the result of export booms in countries that kept exchange rates stable, allowing windfalls to accrue to high-saving producers. What is often called “Dutch disease” also looks different: under dollar pricing, currency appreciation hurts tradable sectors by squeezing profits, not just by shifting resources.

The bottom line is simple but powerful. In a world where exports are priced in dollars, exchange rates do more than affect competitiveness. They decide who captures export windfalls, and whether export booms become engines of saving, investment, and lasting growth, or fade into short-lived consumption booms once global conditions change.