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Government Spending, the Real Interest Rate, and the Behavior of Liquidity-Constrained Consumers in Developing Countries

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  • Nicola Rossi

    (International Monetary Fund)

Abstract

Empirical evidence on the deeterminants of private saving in 49 developing countries over the period 1973-83 indicates that, as predicted by theory, a positive relationship exists between the rate of growth of consumption and the expected real interest rate. The strength of that relatioship, how-ever, is such that increases in the real rate of return are not likely to elicit substantial increases in savings, especially in low-income developing countries. It appears that consumer behavior in developing countries is dominated by pervasive liquidity constraints that are exploitable for policy purposes.

Suggested Citation

  • Nicola Rossi, 1988. "Government Spending, the Real Interest Rate, and the Behavior of Liquidity-Constrained Consumers in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 35(1), pages 104-140, March.
  • Handle: RePEc:pal:imfstp:v:35:y:1988:i:1:p:104-140
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    Cited by:

    1. Basil Dalamagas, 1994. "Testing the Debt-Illusion Hypothesis," Revue Économique, Programme National Persée, vol. 45(4), pages 1079-1094.
    2. Carmen M. Reinhart, 1990. "A Model of Adjustment and Growth: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 37(1), pages 168-182, March.
    3. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
    4. Carmen M. Reinhart, 1991. "Fiscal Policy, the Real Exchange Rate, and Commodity Prices," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 506-524, September.
    5. John Baffore-Bonnie & Mohammed Khayum, 1997. "Economic Development, Life-Cycle Consumption and Planning Hirizon," International Economic Journal, Taylor & Francis Journals, vol. 11(4), pages 17-37.
    6. Reinhart, Carmen M. & Talvi, Ernesto, 1998. "Capital flows and saving in Latin America and Asia: a reinterpretation," Journal of Development Economics, Elsevier, vol. 57(1), pages 45-66, October.
    7. Buffie, Edward F., 1999. "Optimal trade liberalization and the welfare costs of imperfect credibility," Journal of International Economics, Elsevier, vol. 47(2), pages 371-398, April.
    8. Schmidt-Hebbel, K. & Serven, L., 1997. "Saving Across the World: Puzzles and Policies," World Bank - Discussion Papers 354, World Bank.
    9. Buffie, Edward F. & Won, Yongkul, 2001. "Devaluation and investment in an optimizing model of the small open economy," European Economic Review, Elsevier, vol. 45(8), pages 1461-1499, August.
    10. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.
    11. Luis Zambrano Sequín & Matías Riutort & Rafael Muñoz & Juan Carlos Guevara, 1998. "El ahorro privado en Venezuela: Tendencias y determinantes," Research Department Publications 3021, Inter-American Development Bank, Research Department.
    12. Philip R. Gerson, 1998. "The Impact of Fiscal Policy Variables on Output Growth," IMF Working Papers 98/1, International Monetary Fund.
    13. Carmen M. Reinhart & Ioannis Tokatlidis, 2003. "Financial Liberalisation: The African Experience," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 53-88, September.
    14. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.
    15. Robin Winkler, 2015. "Feast or Famine: The Welfare Impact of Food Price Controls in Nazi Germany," Oxford University Economic and Social History Series _136, University of Oxford, Department of Economics.
    16. Hatzinikolaou, Dimitris, 1997. "Government spending, taxation of interest, and private saving: An empirical analysis using Greek aggregate data," Journal of Development Economics, Elsevier, vol. 52(2), pages 317-330, April.
    17. Gulnur MURADOGLU & Fatma TASKIN, 1996. "Differences In Household Savings Behavior: Evidence From Industrial And Developing Countries," The Developing Economies, Institute of Developing Economies, vol. 34(2), pages 138-153, June.
    18. Robin Winkler, 2015. "Feast or Famine: The Welfare Impact of Food Price Controls in Nazi Germany," Economics Series Working Papers Number 136, University of Oxford, Department of Economics.
    19. Robin Winkler, 2015. "Feast or Famine: The Welfare Impact of Food Price Controls in Nazi Germany," Oxford University Economic and Social History Series _136, Economics Group, Nuffield College, University of Oxford.
    20. F. Alejandro Villagomez, 1997. "Private saving, interest rates and liquidity constraints in LDCs: recent evidence," Applied Economics, Taylor & Francis Journals, vol. 29(5), pages 607-615.
    21. Senhadji, Abdelhak S., 1998. "Dynamics of the trade balance and the terms of trade in LDCs: The S-curve," Journal of International Economics, Elsevier, vol. 46(1), pages 105-131, October.
    22. Buffie, Edward F, 1999. "Public Sector Wage Cycles and the Co-movement of the Fiscal Deficit and Inflation in Less-Developed Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 785-810, November.
    23. Rajendra Prasad Shrestha Ph. D., 2008. "Private Savings Behaviour in Nepal: Long-term Determinants and Short-run Dynamics," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 20, pages 16-31, April.
    24. Dhaneshwar Ghura & E. Murat Ucer & Martin Mühleisen & Michael T. Hadjimichael & Roger Nord, 1994. "Effects of Macroeconomic Stabilityon Growth, Savings, and Investment in Sub-Saharan Africa; An Empirical Investigation," IMF Working Papers 94/98, International Monetary Fund.
    25. Baharumshah, Ahmad Zubaidi & Thanoon, Marwan A. & Rashid, Salim, 2003. "Saving dynamics in the Asian countries," Journal of Asian Economics, Elsevier, vol. 13(6), pages 827-845, January.

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