Savings, Investment and Growth Patterns in Developed and Developing countries

Variations in growth performances across regions of the world have been of significant interest to development economists. Prior to the spectacular growth of many of the East Asian economies, a variety of structural and non-structural factors were employed to explain the differences in growth_ performances. Since that time, however, regional variation in growth achievement has been explained in terms of differences in savings and investment performances. It has been widely observed in the literature that some regions ( e.g., Sub-Saharan Africa and Latin America) tend to save and invest a smaller proportion of their aggregate outputs than did their more dynamic counterparts (e.g., Asia and the Organization for Economic Cooperation and Development Countries (OECD)). Our interest in the linkage between savings, investment and economic growth is not new in the economic development literature. The works of Arthur Lewis in the 1950s, for example, portray the central task of economic development as that of raising the proportion of national income saved and invested from 4-5 per cent to 12-15 per cent (Lewis 1954). Recent theoretical perspectives, typified by endogenous growth models, suggest that high investment rates can result in a permanent increase in an economy's overall growth rates (Romer:·1986; Lucas 1988). Both theoretical approaches identify investment as a fundamental factor in economic growth. In contrast to developed countries, where growth- problems were viewed in the Keynesian sense of too much saving and too little spending, investment and, hence, economic growth in developing countries were constrained by the insufficiency of savings (James, et al 1987). In this context, evidence from development experiences strongly suggests that the best performing countries (even among the developing ones), have achieved this status largely on the basis of their high rates of savings and investment