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Explaining differences in the domestic savings ratio across countries: A panel data study

  • Khaled Hussein
  • A. P. Thirlwall

This article seeks to analyse the major determinants of differences in the domestic savings ratio between countries using panel data for 62 countries over the period 1967—95. A basic distinction is made between the determinants of the capacity to save and the willingness to save. The capacity to save depends primarily on the level of per capita income (but non-linearly) and the growth of income (the life-cycle hypothesis), and the empirics strongly support these hypotheses. The willingness to save is assumed to depend on financial variables such as the rate of interest, the level of financial deepening and inflation. We find no support for a positive interest rate effect, but strong support for the level of financial deepening measured by the ratio of quasi-liquid liabilities to GDP. Inflation exerts a mild positive effect on saving but soon turns negative. Total saving may also depend on tax effort, but a surprisingly strong negative relation is found between the ratio of tax revenue to GDP and the domestic savings ratio.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00220389908422610
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Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

Volume (Year): 36 (1999)
Issue (Month): 1 ()
Pages: 31-52

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Handle: RePEc:taf:jdevst:v:36:y:1999:i:1:p:31-52
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  1. Anthony P. Thirwall, 1972. "Inflation and the Savings Ration Across Countries," Working Papers 414, Princeton University, Department of Economics, Industrial Relations Section..
  2. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
  3. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  4. Friedman, Milton, 1971. "Government Revenue from Inflation," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 846-56, July-Aug..
  5. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
  6. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
  7. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
  8. Leff, Nathaniel H, 1969. "Dependency Rates and Savings Rates," American Economic Review, American Economic Association, vol. 59(5), pages 886-96, December.
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