When Does Domestic Savings Matter for Economic Growth?

Philippe Aghion (), Diego Comin, Peter Howitt and Isabel Tecu
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Philippe Aghion: Harvard University, PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Collège de France - Chaire Economie des institutions, de l'innovation et de la croissance - CdF (institution) - Collège de France
Peter Howitt: Brown University
Isabel Tecu: Brown University

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Abstract: Can a country grow faster by saving more? The paper addresses this question both theoretically and empirically. In the theoretical model, growth results from innovations that allow local sectors to catch up with frontier technology. In poor countries, catching up requires the cooperation of a foreign investor who is familiar with the frontier technology and a domestic entrepreneur who is familiar with local conditions. In such a country, domestic savings matters for innovation, and therefore growth, because it enables the local entrepreneur to put equity into this cooperative venture, which mitigates an agency problem that would otherwise deter the foreign investor from participating. In rich countries, domestic entrepreneurs are already familiar with frontier technology and therefore do not need to attract foreign investment to innovate, so domestic savings does not matter for growth. A cross-country regression shows that lagged savings is positively associated with productivity growth in poor countries but not in rich countries.

Keywords: Economic; growth (search for similar items in EconPapers)
Date: 2016-08
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Citations: View citations in EconPapers (22)

Published in IMF Economic Review, 2016, 64 (3), pp.381 - 407. ⟨10.1057/imfer.2015.41⟩

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Related works:
Journal Article: When Does Domestic Savings Matter for Economic Growth? (2016)
Working Paper: When Does Domestic Savings Matter for Economic Growth? (2016)
Working Paper: When Does Domestic Saving Matter for Economic Growth? (2009)
Working Paper: When Does Domestic Saving Matter for Economic Growth? (2006)
Working Paper: When Does Domestic Saving Matter for Economic Growth? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-01496930

DOI: 10.1057/imfer.2015.41

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