Chapter 10 Saving and development

This chapter focuses on the determinants of the volume of savings. Savings not only allow for growth in income and increases in consumption, but also for the smoothing of consumption in the presence of various uncertainties. Choices by individuals and families about their savings are one set of fundamental determinants of national savings. These decision-makers divide the current increment to their resources between consumption, the satisfaction of current wants, and savings that in turn will influence their ability to satisfy wants in the future. The chapter describes the process that individuals and households decide to save a particular amount. This material is integrated with evidence on the posited relationships. The chapter presents the process to add up savings from different sources in the economy, first by aggregating over individuals of different ages and incomes and then over the different sectors (household, corporate, and government). The chapter also summarizes the role of government policies in influencing the volume of saving, and reviews empirical studies of the determinants of aggregate savings. The chapter also discusses borrowing constraints; health, nutrition and savings; income distribution and aggregate savings; aggregation over cohorts; the role of government; and so on.