What determines national savings?
Author InfoNam, Sang-Woo Abstract This analysis conducts dynamic simulations to determine how major variables interact across sectors. Changes in growth performance, more than anything else, were responsible for the sharp drops in aggregate savings in 1980-82 in Korea and in 1984-85 in the Philippines. In Korea, per capita income growth explained most of the changes in the national savings ratio during the last two decades. Savings in Korea are also significantly affected by interest rate policy. In the Philippines, by contrast, a higher interest rate had a slightly negative effect – because the positive effect on household savings was more than offset by the negative effect on corporate and government savings. The policy implications of these findings seem obvious. Any adjustment policy packages designed to curb inflation and improve the balance of payments should also be designed to encourage growth – which is needed to encourage savings and thus investment. Download InfoTo download:
