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The effects of interest rates on savings in developing countries

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  • Balassa, Bela
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    Abstract

    This paper provides evidence on the effects of interest rates on savings in developing countries. While the evidence is not conclusive, time-series estimates for individual countries as well as cross-section and time-series estimates for a number of countries point to the positive effects of interest rates on savings. At the same time, a variety of factors may have reduced the statistical significance of the estimates. The author points out that estimates of savings in developing countries are subject to considerable error. Also there are other errors associated with the measurement of interest rates and inflation rates, which are necessary to derive real interest rates. Finally, there is evidence that negative real interest rates bring a shift to gold, real estate, and consumer durables, which latter are included in savings as measured in national income statistics.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 56.

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    Date of creation: 30 Sep 1989
    Date of revision:
    Handle: RePEc:wbk:wbrwps:56

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    Related research

    Keywords: Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform; Insurance&Risk Mitigation; Insurance Law;

    References

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    1. Mikesell, Raymond F & Zinser, James E, 1973. "The Nature of the Savings Function in Developing Countries: A Survey of the Theoretical and Empirical Literature," Journal of Economic Literature, American Economic Association, vol. 11(1), pages 1-26, March.
    2. Lawrence H. Summers, 1982. "Tax Policy, the Rate of Return, and Savings," NBER Working Papers 0995, National Bureau of Economic Research, Inc.
    3. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 249-65, April.
    4. Fry, Maxwell J, 1978. "Money and Capital or Financial Deepening in Economic Development?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 10(4), pages 464-75, November.
    5. Fry, Maxwell J., 1980. "Saving, investment, growth and the cost of financial repression," World Development, Elsevier, Elsevier, vol. 8(4), pages 317-327, April.
    6. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(2), pages S3-27, April.
    7. Gonzales Arrieta, Gerardo M., 1988. "Interest rates, savings, and growth in LDCs: An assessment of recent empirical research," World Development, Elsevier, Elsevier, vol. 16(5), pages 589-605, May.
    8. Alan S. Blinder & Angus Deaton, 1985. "The Time Series Consumption Function Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 465-521.
    9. Giovannini, Alberto, 1983. "The interest elasticity of savings in developing countries: The existing evidence," World Development, Elsevier, Elsevier, vol. 11(7), pages 601-607, July.
    10. Giovannini, Alberto, 1985. "Saving and the real interest rate in LDCs," Journal of Development Economics, Elsevier, Elsevier, vol. 18(2-3), pages 197-217, August.
    11. Khatkhate, Deena R., 1988. "Assessing the impact of interest rates in less developed countries," World Development, Elsevier, Elsevier, vol. 16(5), pages 577-588, May.
    12. Gupta, K L, 1970. "Personal Saving in Developing Nations: Further Evidence," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 46(114), pages 243-49, June.
    13. Lawrence H. Summers, 1984. "The After Tax Rate of Return Affects Private Savings," NBER Working Papers 1351, National Bureau of Economic Research, Inc.
    14. Evans, Owen J, 1983. "Tax Policy, the Interest Elasticity of Saving, and Capital Accumulation: Numerical Analysis of Theoretical Models," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 398-410, June.
    15. Shapiro, Matthew D., 1984. "The permanent income hypothesis and the real interest rate : Some evidence from panel data," Economics Letters, Elsevier, Elsevier, vol. 14(1), pages 93-100.
    16. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
    17. Gylfason, Thorvaldur, 1981. "Interest Rates, Inflation, and the Aggregate Consumption Function," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 233-45, May.
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    Cited by:
    1. Iqbal, Zafar & James, Jeffrey & Pyatt, Graham, 2000. "Three-Gap Analysis of Structural Adjustment in Pakistan," Journal of Policy Modeling, Elsevier, Elsevier, vol. 22(1), pages 117-138, January.
    2. Zafar Iqbal, 1993. "Institutional Variations in Saving Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 32(4), pages 1293-1311.

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