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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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