Saving, investment, and growth in developing countries : an overview
AbstractThe 1990s have seen renewed interest in themes of economic growth and development. This is a welcome change after a decade and a half during which macroeconomics was dominated by a concern with short-term adjustment and stabilization issues -- and basic problems of growth, capital accumulation, and the generation of savings were largely ignored. The authors draw three general lessons from recent literature on saving, investment, and growth: 1) Despite empirical evidence about virtuous circles of heavy saving and investment and rapid growth, the relationship between the three is complex, with causality running in several different directions; 2) Still, saving often seems to follow, rather than precede, investment and growth, contrary to the Mill-Marshall-Solow interpretation; and 3) investment and innovation are the centerpieces of growth. In this regard, the new literature on growth represents a decided (if unintended) return to tradition initiated by Marx, Schumpeter, and Keynes. Saving may not be the chief driving force behind growth, but ensuring an adequate savings level must remain a central policy concern -- to ensure enough financing for capital accumulation and to prevent inflationary pressures or balance of payments disequilibria or both. And encouraging private saving may be essential to expand investment, considering capital market imperfections and liquidity constraints on firms and households in many developing economies. Four policy conclusions emerge: 1)Public savings does notcrowd out private savings one-to-one, so increasing public saving is an effective direct way to raise national saving; 2) foreign saving should be allowed and encouraged to support domestic investment -- even if it also helps finance consumption -- as long as the macroeconomic and regulatory framework is adequate; 3) higher private saving should not be expected in response to the liberalization of interest rates. Market-determined interest rates will improve financial intermediation, the quality of portfolio choices, and the quality of investment -- but not necessarily the volume of savings. Pension reform may be a better way to mobilize domestic resources; and 4) potentially large externalities associated with investment would seem to suggest the need for an"activist"investment policy. But a better way to promote investment and growth is a supportive policy and institutional environment, ensuring macroeconomic stability, social consensus, and a low cost of doing business.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1382.
Date of creation: 30 Nov 1994
Date of revision:
Economic Theory&Research; Environmental Economics&Policies; International Terrorism&Counterterrorism; Achieving Shared Growth; Economic Growth;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Dethier, Jean-Jacques & John, Christoph, 1998. "Taxing capital income in Hungary and the European Union," Policy Research Working Paper Series 1903, The World Bank.
- Martin Grandes & Helmut Reisen, 2003. "Hard Peg versus Soft Float. A Tale of Two Latin-American Countries," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 1057-1090.
- Qureshi, Zia, 1995. "Do we face a global"capital shortage"?," Policy Research Working Paper Series 1526, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.