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Effects of Income Growth on Domestic Saving Rates: The Role of Poverty and Borrowing Constraints

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  • Markus Brueckner
  • Tomoo Kikuchi
  • George Vachadze

Abstract

We study an overlapping generations model where ex-ante identical agents make an occupational choice under a borrowing constraint. Indivisible investment gives rise to entrepreneurial rents and does not allow everyone to become an entrepreneur. Competition forces entrepreneurs to save more than workers. The model predicts that growth in national income has a positive effect on domestic saving rates in poor countries but a negative effect in rich countries. Borrowing constraints increase domestic saving rates as well as the response of domestic saving to growth in income. These predictions are supported by empirical evidence based on panel data that covers 130 countries during 1960-2007.

Suggested Citation

  • Markus Brueckner & Tomoo Kikuchi & George Vachadze, 2016. "Effects of Income Growth on Domestic Saving Rates: The Role of Poverty and Borrowing Constraints," ANU Working Papers in Economics and Econometrics 2016-636, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2016-636
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp636.pdf
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    References listed on IDEAS

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    Cited by:

    1. Markus Brueckner, 2016. "Consumption in Asia," CAMA Working Papers 2016-65, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. George Vachadze, 2021. "Financial development, income and income inequality," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(3), pages 589-628, July.

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    More about this item

    Keywords

    overlapping generations; entrepreneurship; occupational choice; saving; borrowing constraints;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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