An Economic Discourse of the Effect and Benefits of Saving

An Economic Discourse of the Effect and Benefits of Saving

11/19/09

Alexander K. Robinson

Jackson State University

ECO 311-01

Abstract

This paper addresses the relationship between the gross savings of Australia, Cananda, China and the United States of America, how these savings rate, correlates into higher or lower growths rates for the above mention countries, respectively, and the data to be observed will be over a form the course of 1986-2006, a twenty year time span. The study seeks explain how increased levels savings directly leads to higher levels of growth.

Introduction 1

Does national saving translate into increased growth? According to the AK growth model and Solow’s growth model savings is a main contributor to growth as both view higher savings simply as high capital investment.In Solow’s model the economy initially expands due to increased savings before returning to the regular growth rates. This central idea has led to Lewis’s (1955) traditional development theory was that increasing savings would accelerate growth. With this known, why in economic downturns, is consumption looked as a driving force for the economy, while savings is deemed less important? Savings is instrumental for growth as Edwards (1995) found that per capita growth is one of the most important determinants of both private and public savings, facts that are absent in our present day society.

To formally examine the relationship between savings and economic growth, this paper takes Gross Domestic Product (GDP) growth rates, and compares them to gross savings as a percent of Gross National Income (GNI). The study shows that level of income is not as important to growth as savings. Mohan (2006), study showed that income does matter in term as casualty to save; this study explicitly provides an example of how a lower income nation can save more and benefit from the amount of savings. In the paper of...