I estimate a simultaneous-equation model in which the real deposit rat of interest and the black market exchange rate premium affect saving, investment, export, growth, and output growth. The estimates corroborate earlier findings that direct effects of financial distortions on saving are minuscule. Because a major determinant of saving is the output growth rate, however, I find that saving is influenced substantially, albeit indirectly , by financial distortions through their effects on investment, export growth, and output growth. Simulations indicate that differences in the average values of the financial distortion variables explain approximately 50 percent of the difference in saving ratios and 75 percent of the difference in output growth rates between five Pacific Asian countries and 11 countries in other developing areas. [E20, E44, F41, O11 O16]
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