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SAVING BEHAVIOUR IN DEVELOPING COUNTRIES

Introduction:
The 1987, World Development Report noted that gross domestic saving, as a share of income , ranged from 31 % to 33 % in Korea, Malaysia and Indonesia, while Singapore saved 42% of GDF. In contrast the highest saving rate for a Latin American developing country was 26% for Mexico. Argentina, Brazil, Colombia, and Venezuela saved 16%, 22%, 17%, and 24% respectively. For comparison, saving rates were 16% in the United States and 32% in Japan. The question that arises is: Why the developing countries in Asia have so much saving rates? Were Korea, Indonesia, and Malaysia outliers? Have they always ha high saving rates? Did the saving come primarily from government factor, private sector, and corporate sector? Did the public policies affect the saving behavior of an individual?

What may be the factors that affect saving behavior directly or indirectly? The gross domestic savings, as a share of income was much more in developing countries. The developing countries were having high saving rate. It is difficult to make cross country comparison. The saving rate is regarded as the key performance indicators and to achieve a satisfactory growth rate the primary condition is to increase the growth rate. However, not only questions are being arisen regarding significance of saving efforts as an independent determinant of economic progress, but the formulation of policies designed to increase the saving propensity has suffered from lack of knowledge regarding nature of knowledge in developing countries. Saving play an important role in income determination, both in short run through aggregate demand and in long run through capital formation and wealth accumulation. Large potential income demands on world savings. Understanding the determinants of saving is necessary in order to assess the resources that will be available to financial investments and for the real interest rates. High saving countries like Japan, Korea, Singapore have experience high growth rate. When capital is mobile differences in saving propensities may lead to larger external imbalance such as those of United States and Japan.

Objective:
At the microeconomic level, developing country households tend to be large and poor; more engaged in agricultural activities; having uncertain income prospects. The problem of allocating income over time thus looks different in the two above context and the same basic model has different implications for behavior and policy. At macroeconomic level, developing countries are concerned with saving and growth, with possible distortion of aggregate saving and with saving as a measure of economic performance. But few developing countries possess the sort of fiscal system that permits deliberate manipulation of personal disposable income to help stabilize output an employment.

The saving rate is regarded as key performance indicator by development economist and the public saving rise doesnt result in an equal reduction in private saving. Indirect effect of public policies via changes in domestic inflation and real interest rates on private saving are negligible. -Vittorio Corbo

Saving is properly viewed as result from choice between present and future consumption. A key element in choice is rate of time preference.

If there is no uncertainty optimal consumption would equate rate of change of marginal utility of consumption differences of rate of time preference and rate of interest. The relationship between real interest rates, saving, and growth is a central issue in developing economies. The substitution also varies with level of wealth. The response of saving to real interest rate changes for countries at differing stages of development. There is a hypothesis that the saving rates and its sensitivity to the interest rates are a rising function of income. There is also a relationship between household savings and trade shocks. Private savings may rise or fall in response to trade shocks. Savings has relationship with current income, permanent income, wealth, interest rate, price level, occupation, income distribution, direct taxation, household demographic characteristics and other factors. Movements in income as well as in interest rates brought about ex-post equality between saving an investment. A rise in per capita income may lead to higher saving rates. The process of investments involves initially low saving rates, a period

of high growth accompanied by high saving rates and low saving rates in more mature economies.

Reference
1) Douglas.et.al (Jan 1991).Saving behavior in 10 developing countries. In national saving and economic performance (Vol.0-226, pp 349-376).Chicago Collins.S (1989). External debt and macroeconomic performance in Korea. In Developing countries debt and economic performance(Vol.3).Chicago Synder.D (1974).Econometric studies of household saving behavior in developing countries(Vol.10, pp 139-153) Corbo and Hebbel (Jul 1991).Public policies and saving in developing countries(Vol.36,pp 89-115)Washington

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