The relationship behveen real interest rates saving and growth is a central issue in development economics. Using macroeconomic data for a cross-section of countries we estimate a model in which the intertemporal elasticity of substitution varies with the level of wealth. The estimated parameters are used to calculate in the context of a simple endogenous growth model the responsiveness of saving to real interest rate changes for countries at differing stages of development. The hypothesis that the saving rate and its sensitivity to the interest rate are a risins function of income finds strong empirical support.
ASJC Scopus subject areas
- Economics and Econometrics