How does domestic saving matter in

Further, we show that savings is significantly associated with higher levels of FDI inflows and equipment imports and that the effect that these have on growth is significantly larger for poor countries than rich. Email Author Abstract Can a country grow faster by saving more? For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Mallaigh Nolan. HBS professor Diego Comin and colleagues develop a theory of local saving and growth in an open economy with domestic and foreign investors. When requesting a correction, please mention this item's handle: RePEc:pal:imfecr:vyid It also allows you to accept potential citations to this item that we are uncertain about. The paper addresses this question both theoretically and empirically. In poor countries, catching up re- quires the cooperation of a foreign investor who is familiar with the frontier technology and a domestic entrepreneur who is familiar with local conditions. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

In such a country, local saving matters for innovation, and therefore growth, because it allows the domestic bank to cofinance projects and thus to attract foreign investment.

IMF Economic Review, vol. Entrepreneurs in these countries need to rely on foreign investors. You can help correct errors and omissions.

More services and features. The same result is found when the regression is run on data generated by a calibrated version of our theoretical model. From the point of view of standard growth theory, the positive cross-country correlation between saving and growth that many commentators have noted appears puzzling.

domestic savings formula

In poor countries, catching up re- quires the cooperation of a foreign investor who is familiar with the frontier technology and a domestic entrepreneur who is familiar with local conditions. In rich countries, domestic entrepreneurs are already familiar with frontier technology and therefore do not need to attract foreign investment to innovate, so domestic savings does not matter for growth.

More services and features. This effect operates entirely through TFP rather than through capital accumulation. It also allows you to accept potential citations to this item that we are uncertain about. In poor countries, catching up re- quires the cooperation of a foreign investor who is familiar with the frontier technology and a domestic entrepreneur who is familiar with local conditions. HBS professor Diego Comin and colleagues develop a theory of local saving and growth in an open economy with domestic and foreign investors. In such a country, domestic savings matters for innovation, and therefore growth, because it enables the local entrepreneur to put equity into this cooperative venture, which mitigates an agency problem that would otherwise deter the foreign investor from participating. In rich countries, domestic entrepreneurs are already familiar with frontier technology and therefore do not need to attract foreign investment to innovate, so domestic savings does not matter for growth. A cross-country regression shows that lagged savings is positively associated with productivity growth in poor countries but not in rich countries. IMF Economic Review , , vol. You can help correct errors and omissions. In rich countries, domestic entrepreneurs are already familiar with frontier technology and therefore do not need to attract foreign investment to innovate, so domestic saving does not matter for growth. See general information about how to correct material in RePEc.

It also allows you to accept potential citations to this item that we are uncertain about. The paper addresses this question both theoretically and empirically.

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When Does Domestic Savings Matter for Economic Growth?