The Savings Trap and Economic Take-Off

November 1, 1992

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Format: Chicago

Atish R. Ghosh, and Carlos M. Asilis The Savings Trap and Economic Take-Off, (USA: International Monetary Fund, 1992) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We develop an overlapping generations model of a developing economy in which ‘culture’ and technology interact to determine savings, investment and growth. Investment is assumed to involve intermediation or other costs which may, in each period, result in either of two stable equilibria for the savings rate. At the “good” equilibrium, savings and growth are higher than at the “bad” equilibrium, whether the country attains the good or bad equilibrium in any period depends on each individual’s belief about the savings behavior of other agents in the economy. The model implies that fiscal policy or public activities to facilitate private investment can influence saving. In particular, a sustained period of fiscal restraint can shift the economy onto a higher savings and growth path.

Subject: Econometric analysis, Financial institutions, Financial services, Income, Labor, National accounts, Overlapping generations models, Real interest rates, Stocks

Keywords: Eastern Europe, High-savings pattern, Income, Interest rate, Overlapping generations models, Rate of return, Real interest rates, Savings decision, Savings equilibrium, Savings level, Savings rate, Savings trap, Stocks, WP

Publication Details

Pages:

55
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/091
Stock No:

WPIEA0911992
ISBN:

9781451851458
ISSN:

1018-5941

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