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The Savings Trap and Economic Take-Off
Author:
Mr. Atish R. Ghosh
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Mr. Carlos M. Asilisnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 1992: Issue 091
Language:
English
Publication Date:
01 Nov 1992
DOI:
https://doi.org/10.5089/9781451851458.001
ISBN:
9781451851458
ISSN:
1018-5941
Pages:
55
Keywords:
WP; rate of return; interest rate; savings rate; savings equilibrium; high-savings pattern; savings trap; savings decision; savings level; Income; Stocks; Overlapping generations models; Real interest rates; Eastern Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1992: Issue 091