The Mobilization of Savings for Growth and Development in Developing Countries

Anthony Thirlwall

The IUP Journal of Applied Economics, 2002, vol. I, issue 1, 7-30

Abstract: There is no doubt that the challenge of boosting savings is of great importance if Egypt is to sustain the achieved growth rate and increase its investment rate. This paper studies the role of financial liberalization in stimulating savings, investment and growth, with reference to Egypt. The growth in output of any economy depends on capital accumulation, which in turn requires investment and an equivalent amount of savings to match it. Two of the most important issues in development economics, and for developing countries are how to stimulate investment, and how to bring about an increase in the level of saving to fund increased investment. The paper tackled the issue of foreign saving and the conditions that need to be met for borrowing from abroad. Findings of the paper indicate the low level of savings in relations to the standard of living. If Egypt is to continue to grow at over 5% per annum without such reliance on foreign borrowing, then a major challenge is to raise the level of domestic saving ratio. In terms of involuntary saving, which mainly depends on tax efforts, Egypt's tax effort is good by international standards, and it is possible that the country may have reached its taxable capacity in relation to its current level of development. The study makes some reservations on forced saving resulting from inflation initiated by monetary expansion. With regards to foreign saving, it nearly doubled Egypt's growth rate compared with what it would have been if investment had been constrained to the level of domestic saving.

Date: 2002
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