Savings and Growth in Bangladesh

By Agrawal, Pradeep; Sahoo, Pravakar | The Journal of Developing Areas, Spring 2009 | Go to article overview

Savings and Growth in Bangladesh


Agrawal, Pradeep, Sahoo, Pravakar, The Journal of Developing Areas


ABSTRACT

Savings and growth are often strongly correlated. Thus, it is important to study the determinants of savings and the direction of causality between savings and growth as these have important implications for development policy. Yet, careful empirical studies on savings behavior are missing for Bangladesh. Thus, in this paper, we estimate the long-run total and private savings functions for Bangladesh using recent time series techniques. We find that the total savings rate is mainly determined by the GDP growth rate, dependency ratio, interest rates and bank density. The private savings rate is also affected by the public savings rate. Further, using the Granger Causality tests, we find that in Bangladesh, there is a bi-directional causality between savings and growth. We also carry out the Forecast Error Variance Decomposition (FEVD) analysis using the VAR framework. The FEVD results confirm the causality results obtained using the Granger causality tests as well as the estimated savings functions.

JEL Classifications: E21, O16

Keywords: Savings, Growth, Bangladesh, Causality, Co-integration

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Savings and growth are often strongly correlated. Thus, it is important to study the determinants of savings and the direction of causality between savings and growth as these have important implications for development policy. There are some recent studies (see Loayza et al. 2000; Lopez et al. 2000; Schmidt-Hebbel et al. (1996) on the determinants of savings behavior in pooled time series cross-section data on a large number of countries. However, savings behavior shows considerable variation across countries depending on their socio-economic structure and one cannot be sure whether the results of such pooled studies, which are applicable to the average country in the sample, apply to the particular country in question. Thus, cross country regression analysis based on the assumption of homogeneity is not appropriate for each sample country. Given the vast differences among countries with respect to structural features, institutional aspects and also the quality of data, cross-country comparison and estimation is fraught with danger (Deaton, 1989).

It is evident therefore that country specific studies are also important. Taking the example of Bangladesh, a proper empirical study using modern time series techniques is missing (with the exception of Chowdhury, 2001). While the emphasis in Chowdhury's paper is on the financial sector and the impact of financial liberalization on private savings in Bangladesh, the emphasis in our paper is on analyzing the direction of causality between savings and growth, in addition to the overall determinants of savings. Although we do briefly examine the impact of financial development (measured through the number of bank branches per capita, and financial policies, such as the interest rates on bank deposits and broad money) on the savings rate, our treatment of the financial sector and of the impact of financial liberalization on the savings rates is not as detailed as that of Chowdhury. Thus, our study complements Choudhury's and the two studies together provide a fuller analysis of the various aspects of the savings-growth relation.

The previous literature on the determinants of both domestic savings and private savings is very rich. Many previous authors have analyzed the specific factors affecting the savings behavior in different countries1. Trying to examine the determinants of private and public savings in 36 Latin American countries, Edward (1996) finds that per capita income is the most important determinant of private savings along with the demographic structure, social security expenditure and the depth of the financial sector. The strong positive relationship between savings and income have been found by Lahiri (1989) and Dayal and Thimann (1997). But public savings is less affected by these factors. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Savings and Growth in Bangladesh
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.