The Savings Trap and Economic Take-Off

Author/Editor:

Atish R. Ghosh ; Carlos M. Asilis

Publication Date:

November 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We develop an overlapping generations model of a developing economy in which ‘culture’ and technology interact to determine savings, investment and growth. Investment is assumed to involve intermediation or other costs which may, in each period, result in either of two stable equilibria for the savings rate. At the “good” equilibrium, savings and growth are higher than at the “bad” equilibrium, whether the country attains the good or bad equilibrium in any period depends on each individual’s belief about the savings behavior of other agents in the economy. The model implies that fiscal policy or public activities to facilitate private investment can influence saving. In particular, a sustained period of fiscal restraint can shift the economy onto a higher savings and growth path.

Series:

Working Paper No. 92/91

Subject:

English

Publication Date:

November 1, 1992

ISBN/ISSN:

9781451851458/1018-5941

Stock No:

WPIEA0911992

Format:

Paper

Pages:

55

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