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Chapter 14 How Much Should a Nation Save? A New Answer

In: Economic Growth and Development

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  • Olivier de La Grandville

Abstract

We introduce a formula for the optimal savings rate in an economy driven by an investment policy reflecting competitive equilibrium. The reasonable numbers generated by the formula should be of help not only to assess our present situation but also to prepare our future. Moreover, this chapter provides two theorems correcting a widely held belief in economic growth theory, namely that a steady state defined by income per person growing at the labor-augmenting rate can be asymptotically reached only if technical progress is labor-augmenting. We finally show that the magnitudes of the optimal savings rates are highly robust to very different, S-shaped evolutions of population and technology. The chapter closes with a daring conjecture.

Suggested Citation

  • Olivier de La Grandville, 2011. "Chapter 14 How Much Should a Nation Save? A New Answer," Frontiers of Economics and Globalization, in: Economic Growth and Development, pages 389-415, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:fegzzz:s1574-8715(2011)0000011019
    DOI: 10.1108/S1574-8715(2011)0000011019
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