Mario I. Blejer and Adrienne Cheasty
Savings in developing countries are very low, both in absolute terms and in relation to the rates of real economic growth these countries need if their incomes are to keep pace with their fast-expanding populations. In the past, inflows of foreign aid, for projects or for balance of payments support, have been a substitute for domestic savings. But the emerging budgetary conservatism of industrialized countries suggests that developing countries will have to depend more heavily on domestic resources for investment in the future.
Because of this, governments are becoming more concerned with the questions of (1) how best they can increase the total volume of domestic savings, and (2) how they can influence the allocation of what saving there is, so that investible funds are used where the economy needs them most. This article looks at the shortcomings of financial markets that tend to keep savings low in developing countries, evaluates the conventional incentive policies governments use to offset these shortcomings, and suggests an alternative approach.
Blejer, M., “Fiscal Policy in an Economy with High Inflation and High Debt,” International Monetary Fund, Fiscal Affairs Department, Working Paper (1985).
Blejer, M. and M. Khan, Private investment in developing countries,” Finance & Development, Vol. 21, No. 2 (June 1984), pp. 26–29.
Boskin, M.J., “Taxation, Saving, and the Rate of Interest,” Journal of Political Economy, Vol. 86 (April 1978), pp. S3–S27.
Giovannini, A., “Saving and the Real Interest Rate in LDCs,” Journal of Development Economics, Vol, 18, Nos. 2/3 (August 1985, pp. 197–217.
Tanzi, V., “Fiscal Policy, Keynesian Economics, and the Mobilization of Savings in Developing Countries, World Development, Vol. 4, Nos. 10/11 (1976).