When does domestic saving matter for economic growth?
By: Philippe Aghion, Diego Comin, Peter Howitt.
Contributors: Comin, Diego.; Howitt, Peter, 1946-; National Bureau of Economic Research.
Series: NBER working paper series -- no. 12275.; Working paper series (National Bureau of Economic Research) -- working paper no. 12275.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 29
Subjects: Technological innovations -- Developing countries -- Mathematical models; Savings accounts -- Developing countries -- Mathematical models; Investments, Foreign -- Developing countries -- Mathematical models
Description: "Can a country grow faster by saving more? We address this question both theoretically and empirically.  In our model, growth results from innovations that allow local sectors to catch up with the frontier technology.  In relatively poor countries, catching up with the frontier requires the involvement of a foreign investor, who is familiar with the frontier technology, together with effort on the part of a local bank, who can directly monitor local projects to which the technology must be adapted.  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.  But in countries close to the frontier, local firms are familiar with the frontier technology, and therefore do not need to attract foreign investment to undertake an innovation project, so local saving does not matter for growth.  In our empirical exploration we show that lagged savings is significantly associated with productivity growth for poor but not for rich countries.  This effect operates entirely through TFP rather than through capital accumulation.  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"--National Bureau of Economic Research web site.
Notes: "May 2006"

Includes bibliographical references (p. 26-29).

Also available in PDF from the NBER world wide web site (www.nber.org).