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

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Author Info
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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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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Related research
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;

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  1. Bhalla, Surjit S, 1980. "The Measurement of Permanent Income and Its Application to Savings Behavior," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 722-44, August. [Downloadable!] (restricted)
  2. Alderman, Harold, 1996. "Saving and economic shocks in rural Pakistan," Journal of Development Economics, Elsevier, vol. 51(2), pages 343-365, December. [Downloadable!] (restricted)
  3. Christopher D. Carroll, 1991. "Buffer stock saving and the permanent income hypothesis," Working Paper Series / Economic Activity Section 114, Board of Governors of the Federal Reserve System (U.S.).
  4. 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, vol. 23(3), pages 583-94, October. [Downloadable!] (restricted)
  5. Adams, Richard H. Jr. & He, Jane J., 1995. "Sources of income inequality and poverty in rural Pakistan:," Research reports 102, International Food Policy Research Institute (IFPRI). [Downloadable!]
  6. Adams, Richard H, Jr, 1998. "Remittances, Investment, and Rural Asset Accumulation in Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 47(1), pages 155-73, October.
  7. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-73, November. [Downloadable!] (restricted)
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  8. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March. [Downloadable!] (restricted)
  9. Bhalla, Surjit S., 1978. "The role of sources of income and investment opportunities in rural savings," Journal of Development Economics, Elsevier, vol. 5(3), pages 259-281, September. [Downloadable!] (restricted)
  10. Christopher D. Carroll & Andrew A. Samwick, 1998. "How Important Is Precautionary Saving?," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 410-419, August. [Downloadable!] (restricted)
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  11. Bhalla, Surjit S, 1979. "Measurement Errors and the Permanent Income Hypothesis: Evidence from Rural India," American Economic Review, American Economic Association, vol. 69(3), pages 295-307, June. [Downloadable!] (restricted)
  12. Holbrook, Robert & Stafford, Frank P, 1971. "The Propensity to Consume Separate Types of Income: A Generalized Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 39(1), pages 1-21, January.
  13. 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. [Downloadable!] (restricted)
  14. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  15. Musgrove, Philip, 1979. "Permanent Household Income and Consumption in Urban South America," American Economic Review, American Economic Association, vol. 69(3), pages 355-68, June. [Downloadable!] (restricted)
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