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Saving Behavior in Low and Middle-Income Developing Countries: A Comparison

Author

Listed:
  • Mr. Jonathan David Ostry
  • Ms. Carmen Reinhart
  • Masao Ogaki

Abstract

The impact of changes in real interest rates on saving and growth is a central issue in development economics. According to one familiar view, a financial liberalization program which increases real interest rates should encourage saving, thereby boosting investment and growth. While such liberalizations have indeed typically succeeded in raising real interest rates, their impact on private saving has been mixed. This paper uses macroeconomic data for a sample of countries with diverse income levels to estimate a model in which the intertemporal elasticity of substitution varies with the level of wealth. The estimated parameters are then used to calculate, in the context of a simple endogenous growth model, the responsiveness of saving to real interest rate changes for countries at differing stages of development.

Suggested Citation

  • Mr. Jonathan David Ostry & Ms. Carmen Reinhart & Masao Ogaki, 1995. "Saving Behavior in Low and Middle-Income Developing Countries: A Comparison," IMF Working Papers 1995/003, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:1995/003
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    Keywords

    WP; real rate of interest; rate of return; utility function; saving rate; saving elasticity; discount factor; subsistence consumption level; food consumption; consumption growth; Real interest rates; Income; Consumption; Domestic savings; Private savings; Africa;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F3 - International Economics - - International Finance
    • F1 - International Economics - - Trade

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