Savings, Investment, Growth and Financial Distortions in Pacific Asia and Other Developing Areas

Abstract

I estimate a simultaneous-equation model in which the real deposit rate of interest and the black market exchange rate premium affect saving, investment, export growth and output growth. The estimates corroborate earlier findings that directeffects of financial distortions on savings are minuscule. Because a major determinant of savings is the output growth rate, however, I find that saving is influenced substantially, albeit indirectly, by financial distortions through their effect on investment, export growth, and output growth. Simulations indicate that difference in the average values of the financial distortion variables explain approximately 50 percent of the difference in saving ratios and 75 percent of the difference in out put growth rate between five Pacific Asian countries and 11 countries in other developing areas. [E20, E44, F41, O11, O16]

^*My thanks go to two referees and the editor for useful comments on an earlier version of this paper. Financial support from the Economic & Social Research Council under its Research Programme on Pacific Asia, grant L324253010, is gratefully acknowledged. Micro TSP, version 7.0, was used for all graphics and regressions.

^*My thanks go to two referees and the editor for useful comments on an earlier version of this paper. Financial support from the Economic & Social Research Council under its Research Programme on Pacific Asia, grant L324253010, is gratefully acknowledged. Micro TSP, version 7.0, was used for all graphics and regressions.

Notes

^*My thanks go to two referees and the editor for useful comments on an earlier version of this paper. Financial support from the Economic & Social Research Council under its Research Programme on Pacific Asia, grant L324253010, is gratefully acknowledged. Micro TSP, version 7.0, was used for all graphics and regressions.