Explaining Differences in the Domestic Savings Ratio Across Countries: A Panel Data Study

Khaled A. Hussein () and Anthony Thirlwall

Studies in Economics from School of Economics, University of Kent

Abstract: This paper seeks to analyse the major determinants of differences in the domestic savings ratio between countries using panel data for 62 countries over the period 1967-1995. A basic distinction is made between the determinants of the capacity to save and the willingness to save. The capacity to save depends primarily on the level of per capita income (but non-linearly) and the growth of income (the life cycle hypothesis), and the empirics strongly support these hypotheses. The willingness to save is assumed to depend on financial variables such as the rate of interest, the level of financial deepening and inflation. We find no support for a positive interest rate effect, but strong support for the level of financial deepening measured by the ratio of quasi-liquid liabilities to GDP. Inflation exerts a mild positive effect on saving but soon turns negative. Total saving also depends on government saving, and a surprisingly strong negative relation is found between the ratio of tax revenue to GDP and the domestic savings ratio.

Keywords: Domestic savings; income; financial variables; tax (search for similar items in EconPapers)
JEL-codes: E21 (search for similar items in EconPapers)
Date: 1999-02
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Citations: View citations in EconPapers (25)

Published in Journal of Development Studies, 1999, 36, pp.31-52

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Journal Article: Explaining differences in the domestic savings ratio across countries: A panel data study (1999)
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