Government Spending, the Real Interest Rate, and the Behavior of Liquidity-Constrained Consumers in Developing Countries

Nicola Rossi
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Nicola Rossi: International Monetary Fund

IMF Staff Papers, 1988, vol. 35, issue 1, 104-140

Abstract: Empirical evidence on the deeterminants of private saving in 49 developing countries over the period 1973-83 indicates that, as predicted by theory, a positive relationship exists between the rate of growth of consumption and the expected real interest rate. The strength of that relatioship, how-ever, is such that increases in the real rate of return are not likely to elicit substantial increases in savings, especially in low-income developing countries. It appears that consumer behavior in developing countries is dominated by pervasive liquidity constraints that are exploitable for policy purposes.

Date: 1988
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