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Precautionary saving from different sources of income - evidence from rural Pakistan

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  • Adams, Richard H.

Abstract

Few studies have tried to measure how households in a developing country save from each of the different income sources at their disposal. To help fill that gap, the Author uses five-year panel data to examine how households in rural Pakistan save from each of the seven separate sources of income. The author finds that households save from different sources of income at significantly different marginal rates. For example, the marginal propensity to save from external remittances (0.711) is much higher than that for rental income (0.085). As the precautionary model of saving suggests, the reasons for this relate to uncertainty: income that is more variable, tends to be saved at a higher marginal rate. Faced with incomplete capital, and credit markets, households in rural Pakistan save: for a rainy day"by putting away mainly those sources of income that are more variable, and uncertain.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2761.

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Date of creation: 31 Jan 2002
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Handle: RePEc:wbk:wbrwps:2761

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Payment Systems&Infrastructure; Services&Transfers to Poor; Health Economics&Finance; Economic Theory&Research; Environmental Economics&Policies; Inequality; Health Economics&Finance; Poverty Diagnostics;

References

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  1. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 15-33, March.
  2. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, Econometric Society, vol. 55(6), pages 1249-73, November.
  3. Christopher D. Carroll & Andrew A. Samwick, 1993. "How important is precautionary saving?," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 145, Board of Governors of the Federal Reserve System (U.S.).
  4. Alderman, Harold, 1996. "Saving and economic shocks in rural Pakistan," Journal of Development Economics, Elsevier, Elsevier, vol. 51(2), pages 343-365, December.
  5. Bhalla, Surjit S., 1978. "The role of sources of income and investment opportunities in rural savings," Journal of Development Economics, Elsevier, Elsevier, vol. 5(3), pages 259-281, September.
  6. Adams, Richard H, Jr, 1998. "Remittances, Investment, and Rural Asset Accumulation in Pakistan," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 47(1), pages 155-73, October.
  7. Adams, Richard H. Jr. & He, Jane J., 1995. "Sources of income inequality and poverty in rural Pakistan:," Research reports, International Food Policy Research Institute (IFPRI) 102, International Food Policy Research Institute (IFPRI).
  8. Christopher D. Carroll, 1991. "Buffer stock saving and the permanent income hypothesis," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 114, Board of Governors of the Federal Reserve System (U.S.).
  9. Wolpin, Kenneth I, 1982. "A New Test of the Permanent Income Hypothesis: The Impact of Weather on the Income and Consumption of Farm Households in India," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 583-94, October.
  10. Gersovitz, Mark, 1988. "Saving and development," Handbook of Development Economics, Elsevier, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 10, pages 381-424 Elsevier.
  11. Holbrook, Robert & Stafford, Frank P, 1971. "The Propensity to Consume Separate Types of Income: A Generalized Permanent Income Hypothesis," Econometrica, Econometric Society, Econometric Society, vol. 39(1), pages 1-21, January.
  12. Bhalla, Surjit S, 1980. "The Measurement of Permanent Income and Its Application to Savings Behavior," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(4), pages 722-44, August.
  13. Musgrove, Philip, 1979. "Permanent Household Income and Consumption in Urban South America," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 355-68, June.
  14. Bhalla, Surjit S, 1979. "Measurement Errors and the Permanent Income Hypothesis: Evidence from Rural India," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 295-307, June.
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Citations

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Cited by:
  1. X. Bonnet & H. Poncet, 2004. "Income composition and propensities to consume," Documents de Travail de la DESE - Working Papers of the DESE, Institut National de la Statistique et des Etudes Economiques, DESE g2004-12, Institut National de la Statistique et des Etudes Economiques, DESE.
  2. Ramirez, Miguel D. & Sharma, Hari, 2008. "Remittances and Growth in Latin America: A Panel Unit Root and Panel Cointegration Analysis," Working Papers, Yale University, Department of Economics 51, Yale University, Department of Economics.
  3. Charlotte Guénard & Sandrine Mesplé-Somps, 2004. "Mesurer les inégalités : que captent réellement les enquêtes ? Analyse de deux enquêtes ivoirienne et malgache," Working Papers, DIAL (Développement, Institutions et Mondialisation) DT/2004/13, DIAL (Développement, Institutions et Mondialisation), revised Dec 2004.
  4. Davies, Simon & Easaw, Joshy & Ghoshray, Atanu, 2009. "Mental accounting and remittances: A study of rural Malawian households," Journal of Economic Psychology, Elsevier, Elsevier, vol. 30(3), pages 321-334, June.
  5. World Bank, 2007. "Social Protection in Pakistan : Managing Household Risks and Vulnerability," World Bank Other Operational Studies 7660, The World Bank.

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