Saving, Financial Intermediation and Economic Growth in Asia

The level of national saving is one of the key determinants of sustained economic growth. Another is the efficiency with which both national and foreign resources are allocated among alternative investment projects. The bulk of national saving in the Asian developing countries examined here, as in most other countries, is routed to domestic investment via three channels – government appropriation, self-finance (in both the formal and informal sectors), and financial intermediation. The relative importance of each channel depends mainly on the level of economic development and the roles ascribed to public and private sectors of the economy. Countries that rely more heavily on government appropriation place less emphasis on financial intermediation for the financing of investment. Recently, however, a number of developing countries have given a larger role to the private sector in the development process. In the face of contracting net inflows of external finance and a tendency for greater reliance on the private sector, domestic resource mobilization and the efficient allocation of investible funds by the financial system have become increasingly important factors in the development process…