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What Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka

Author

Listed:
  • Callen, Michael

    (Harvard Kennedy School)

  • Mel, Suresh de

    (University of Peradeniya)

  • McIntosh, Craig

    (University of California,)

  • Woodruff, Christopher

    (University of Warwick)

Abstract

When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We find that the headwaters of formal savings are in sacrificed leisure time: households work more, with evidence that improved savings options generate an increase in labor effort in both selfemployment and the wage market. The results are consistent with a standard neo-classical model of the effect of real interest rate changes on intertemporal labor allocation, and suggest that the labor allocation channel is an important mechanism linking savings opportunities to income.

Suggested Citation

  • Callen, Michael & Mel, Suresh de & McIntosh, Craig & Woodruff, Christopher, 2016. "What Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka," CAGE Online Working Paper Series 279, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:279
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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/279-2016_woodruff.pdf
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    Keywords

    savings; household decisionmaking; high-frequency surveys. JEL Classification: O16; D14; G21;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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