The Saving-Income Relation in Under-Developed and Developed Countries

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.Wiley, Royal Economic Society are collaborating with JSTOR to digitize, preserve and extend access to The Economic Journal This content downloaded from 144.82.108.120 on Thu, 16 Jun 2016 13:13:40 UTC All use subject to http://about.jstor.org/terms THE SAVING-INCOME RELATION IN UNDER-DEVELOPED AND DEVELOPED COUNTRIES' I. PURPOSE AMONG the host of factors which determine the growth of an economy, two would seem to play pre-eminent roles: The economy's rate of saving out of current income and the form of investment such savings take. Not only are the determinants of saving important for an understanding of the source of investment, and hence of economic growth, but they are also of interest with regard to the continuing disagreements about the nature of the consumption function. The major purpose of this study is to investigate the relation among various concepts of current saving and income for fortyfour countries.2 Perhaps the best-known hypothesis concerning the determinants of current saving, however defined, is the current income hypothesis. It states simply that current saving is a linear function of current income: S =oc + ?Y. Current income is the only independent variable, and the hypothesis is that saving is positively related to current income.We estimate statistically the parameters, oc and P, and test a number of hypotheses pertaining to them. We do this for several different categories of aggregate private saving and aggregate income. In the light of recent work on the saving-income relation, such a simple hypothesis might seem over-naive. Both theoretical and empirical work have indicated that the 1 We gratefully acknowledge the financial support received from the Center for Comparative Studies on Economic Growth at the University of Washington. We would like to mention the many individuals who have helped us in this study, Rick Freeman and Richard Sutch, our research assistants, have worked beyond the normal call of duty; Richard Sutch especially has offered many valuable suggestions.