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The Determinants Of Private Saving In India

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  • Prema-chandra Athukorala

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  • Kunal Sen

Abstract

This paper examines the determinants of private saving in the process of economic development, in the light of the Indian experience during the period 1954 - 1998. The methodology involves the estimation of a saving rate function derived within the life cycle framework while paying attention to the structural characteristics of a developing economy. It is found that the saving rate rises with both the level and the rate of growth of disposable income and the magnitude of the impact of the former is smaller than that of the latter. The real interest rate on bank deposits has a significant positive impact, but the magnitude of the impact is modest. Public saving seems to crowd out private saving, but less than proportionately, suggesting that public policy can influence the national saving rate. Among the other variables considered, the spread of banking facilities in the economy and the rate of inflation seem to have a positive impact and changes in the external terms of trade and migrant remittances a negative impact on private saving.

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Bibliographic Info

Paper provided by The Australian National University, Australia South Asia Research Centre in its series ASARC Working Papers with number 2001-13.

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Length: 47
Date of creation: 2001
Date of revision:
Handle: RePEc:pas:asarcc:2001-13

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Keywords: India; saving rate; financial intermediation; macroeconomic policy;

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References

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  1. Angus Deaton & Christina Paxson, 2000. "Growth and Saving Among Individuals and Households," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 212-225, May.
  2. Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 251-70, May.
  3. Premachandra Athukorala, 1992. "The use of migrant remittances in development: Lessons from the asian experience," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(5), pages 511-529, 09.
  4. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  5. Robert J. Barro, 1996. "Determinants of Economic Growth: A Cross-Country Empirical Study," NBER Working Papers 5698, National Bureau of Economic Research, Inc.
  6. Deaton, A., 1989. "Saving in Developing Contries: Theory and Review," Papers 144, Princeton, Woodrow Wilson School - Development Studies.
  7. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
  8. Gersovitz, Mark, 1988. "Saving and development," Handbook of Development Economics, in: Hollis Chenery† & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 10, pages 381-424 Elsevier.
  9. Corbo, Vittorio & Schmidt-Hebbel, Klaus, 1991. "Public policies and saving in developing countries," Journal of Development Economics, Elsevier, vol. 36(1), pages 89-115, July.
  10. Fry, M.J., 1995. "Financial Development in Asia: Some Analytical Issues," Papers 95-01, University of Birmingham - International Financial Group.
  11. Modigliani, Franco, 1985. "Life Cycle, Individual Thrift and the Wealth of Nations," Nobel Prize in Economics documents 1985-1, Nobel Prize Committee.
  12. Khaled A. Hussein & A.P. Thirlwall, 1999. "Explaining Differences in the Domestic Savings Ratio Across Countries: A Panel Data Study," Studies in Economics 9904, Department of Economics, University of Kent.
  13. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank.
  14. Inder, Brett, 1993. "Estimating long-run relationships in economics : A comparison of different approaches," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 53-68.
  15. Bhagwati, Jagdish, 1993. "India in Transition: Freeing the Economy," OUP Catalogue, Oxford University Press, number 9780198288473.
  16. Deaton, Angus S, 1977. "Involuntary Saving through Unanticipated Inflation," American Economic Review, American Economic Association, vol. 67(5), pages 899-910, December.
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Cited by:
  1. Tochukwu E. Nwachukwu & Peter Odigie, 2011. "Multidimensional Poverty in Cameroon: Determinants and Spatial Distribution," Research Papers RP_212, African Economic Research Consortium.
  2. Matti Sarvimäki, 2011. "Agglomeration in the Periphery," SERC Discussion Papers 0080, Spatial Economics Research Centre, LSE.
  3. Peter E Robertson, 2010. "Deciphering The Hindu Growth Epic," Economics Discussion / Working Papers 10-19, The University of Western Australia, Department of Economics.
  4. Erna Rachmawati & Ekki Syamsulhakim, 2004. "Factors Affecting Mudaraba Deposits in Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 200404, Department of Economics, Padjadjaran University, revised Aug 2004.
  5. Shahbaz Nasir & Mahmood Khalid, 2004. "Saving-investment Behaviour in Pakistan: An Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 665-682.

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