Implications and Relevance
Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie
Chapter 12: The determinants of saving in developing countries, and the impact of financial liberalization
12. The determinants of saving in developing countries, and the impact of ﬁnancial liberalization A.P. Thirlwall A RETROSPECTIVE INTRODUCTION I have had a long-standing interest in the determinants of savings behaviour in developing countries, particularly in the question of whether inﬂation is detrimental to saving and growth. I began research on the topic of inﬂation and growth in the late 1960s/early 1970s when I ﬁrst started teaching development economics, and looked at some of the data on monetary aggregates and inﬂation for developing countries in the 1950s and 1960s. Contrary to the popular impression that inﬂation was endemic in developing economies, I concluded that many countries (particularly in Africa and Asia) were probably too ﬁnancially conservative. There was hardly any monetary expansion, or rise in the price level, at all in these countries (outside of Latin America), and yet we know that some inﬂation is to be expected in the process of structural change, and that a limited degree of demand inﬂation can be beneﬁcial for growth by stimulating investment. Demand inﬂation raises entrepreneurs’ prospective yields, and reduces the real rate of interest, at least in the short run. As Arthur Lewis (1955) once said, ‘inﬂation which is due to the creation of money for the purpose of accelerating capital formation results in accelerated capital formation’, or as Keynes (1931) put it, ‘it is worse in an impoverished world to provoke unemployment than to disappoint the rentier’. Taking a sample of...
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