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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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File URL: https://crawford.anu.edu.au/acde/asarc/pdf/papers/2001/WP2001_13.pdf
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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. Modigliani, Franco, 1985. "Life Cycle, Individual Thrift and the Wealth of Nations," Nobel Prize in Economics documents 1985-1, Nobel Prize Committee.
  2. 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.
  3. Bhagwati, Jagdish, 1993. "India in Transition: Freeing the Economy," OUP Catalogue, Oxford University Press, number 9780198288473.
  4. Robert J. Barro, 1996. "Determinants of Economic Growth: A Cross-Country Empirical Study," NBER Working Papers 5698, National Bureau of Economic Research, Inc.
  5. Prema-chandra Athukorala, 1990. "The Use of Migrant Remittances in Development: Lessons from The Asian Experience," Working Papers 1990.23, School of Economics, La Trobe University.
  6. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  7. 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.
  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. 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.
  10. Maurice Obstfeld, 1981. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," NBER Working Papers 0686, National Bureau of Economic Research, Inc.
  11. Deaton, A., 1989. "Saving in Developing Contries: Theory and Review," Papers 144, Princeton, Woodrow Wilson School - Development Studies.
  12. Fry, M.J., 1995. "Financial Development in Asia: Some Analytical Issues," Papers 95-01, University of Birmingham - International Financial Group.
  13. Khaled Hussein & A. P. Thirlwall, 1999. "Explaining differences in the domestic savings ratio across countries: A panel data study," Journal of Development Studies, Taylor & Francis Journals, vol. 36(1), pages 31-52.
  14. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank.
  15. 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.
  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. Maria Belén Zinni, 2013. "Identifying Drivers for the Accumulation of Household Financial Wealth," CEIS Research Paper 264, Tor Vergata University, CEIS, revised 13 Feb 2013.
  2. 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.
  3. Matti Sarvimäki, 2011. "Agglomeration in the Periphery," SERC Discussion Papers 0080, Spatial Economics Research Centre, LSE.
  4. 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.
  5. Sahoo, Pravakar & Dash, Ranjan Kumar, 2013. "Financial sector development and domestic savings in South Asia," Economic Modelling, Elsevier, vol. 33(C), pages 388-397.
  6. Yaya Keho, 2011. "Long‐Run Determinants Of Savings Rates In Waemu Countries: An Empirical Assessment From Ardl Bounds Testing Approach," South African Journal of Economics, Economic Society of South Africa, vol. 79(3), pages 312-329, 09.
  7. Shahbaz, Muhammad & Nawaz, Kishwar & Arouri, Mohamed & Teulon, Frédéric & Uddin, Gazi Salah, 2013. "On the validity of the Keynesian Absolute Income hypothesis in Pakistan: An ARDL bounds testing approach," Economic Modelling, Elsevier, vol. 35(C), pages 290-296.
  8. Preecha Swasdpeera & I.M. Pandey, 2012. "Determinants of personal saving: a study of salaried individuals in Thailand," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 3(1), pages 34-68.
  9. Ejaz Ghani, 2011. "Reshaping Tomorrow : Is South Asia Ready for the Big Leap?," World Bank Publications, The World Bank, number 16360, October.
  10. Peter E Robertson, 2010. "Deciphering The Hindu Growth Epic," Economics Discussion / Working Papers 10-19, The University of Western Australia, Department of Economics.

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