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Can Africa's Saving Collapse Be Reversed?

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  • Ibrahim A. Elbadawi
  • Francis M. Mwega
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    Abstract

    Private saving in Sub-Saharan Africa declined from more than 11 percent of disposable income in the 1970s to less than 8 percent in the 1980s and only partially recovered (to less than 9 percent) in the 1990s. This article analyzes the determinants of private saving in Sub-Saharan Africa, seeking to explain the region's dismal performance and identify policies that could help to reverse the region's decline in saving. The analysis shows that in Sub-Saharan Africa causality runs from growth to investment (and perhaps to private saving), whereas a rise in the saving rate Granger-causes an increase in investment. Foreign aid Granger-causes a reduction in both saving and investment, and investment also Granger-causes an increase in foreign aid. The empirical analysis of private saving in Sub-Saharan Africa and other regions over 1970–95 suggests that private saving in Africa can be explained by standard behavioral models. According to these models private saving in Africa lags behind that in other regions (most notably, the high performing Asian economies) because of the region's lower per capita income, high young-age dependency ratio, and high dependence on aid. The combined effects of these factors substantially outweigh Africa's advantage from its lower public saving and higher government consumption. Finally, analysis of the experiences of Kenya, Zimbabwe, and Botswana provides further insight into the saving process in Sub-Saharan Africa. Copyright The Author 2000. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

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    Bibliographic Info

    Article provided by World Bank Group in its journal The World Bank Economic Review.

    Volume (Year): 14 (2000)
    Issue (Month): 3 (September)
    Pages: 415-443

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    Handle: RePEc:oup:wbecrv:v:14:y:2000:i:3:p:415-443

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    1. Christopher D. Carroll & David N. Weil, 1993. "Saving and growth: a reinterpretation," Working Paper Series / Economic Activity Section 140, Board of Governors of the Federal Reserve System (U.S.).
    2. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
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    7. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
    8. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S3-27, April.
    9. Martin Feldstein & Philippe Bacchetta, 1991. "National Saving and International Investment," NBER Chapters, in: National Saving and Economic Performance, pages 201-226 National Bureau of Economic Research, Inc.
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    14. Alwyn Young, 1994. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," NBER Working Papers 4680, National Bureau of Economic Research, Inc.
    15. Raut, Lakshmi & Virmani, Arvind, 1989. "Determinants of Consumption and Savings Behavior in Developing Countries," World Bank Economic Review, World Bank Group, vol. 3(3), pages 379-93, September.
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    18. repec:fth:michin:358 is not listed on IDEAS
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    Cited by:
    1. Gode, Constantino J., 2001. "Sovereign Debt and Uncertainty in the Mozambican Economy," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    2. Léonce Ndikumana & Zuzana Brixiova & Kaouther Abderrahim, 2010. "Working Paper 117 - Supporting Africa's Post-Crisis Growth: The Role of Macroeconomic Policies," Working Paper Series 254, African Development Bank.
    3. Rune Jansen Hagen, 2002. "Marginalisation in the Context of Globalisation: Why Is Africa so Poor?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 28, pages 147-179.
    4. NGUENA, Christian L., 2011. "Heterogeneity of Saving-Investment Causality and Fiscal Coordination Implication: The Case of an African Monetary Union," MPRA Paper 49411, University Library of Munich, Germany, revised 31 Aug 2013.
    5. Jomo Kwame Sundaram & Rudiger von Arnim, 2008. "Economic liberalization and constraints to development in sub-Saharan africa," Working Papers 67, United Nations, Department of Economics and Social Affairs.
    6. Sahoo, Pravakar & Dash, Ranjan Kumar, 2013. "Financial sector development and domestic savings in South Asia," Economic Modelling, Elsevier, vol. 33(C), pages 388-397.

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