The Growth Of Savings And Economic Growth Economics Essay

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The first result is found that the higher savings rates induce by liquidity constraints lead to a higher economic growth. One of the implications for liquidity constraints is inducing the capital accumulation, it may face a higher growth rate while the liquidity constraints on household. To illustrate the relationships between saving, growth and liquidity constraints, we would like to discuss about individuals live for three periods. In the second period of their life, they will earn the labor income. It encourage them an intergenerational borrowing. When in middle ages, they repay the loan from the first period and save in retirement. Last, they consume their savings in the second period when old. So, if the market is perfect, they can borrow the money of their needed, but because of liquidity constraints, they only can borrow in a proportion of their present income. So, the first two live for the period we can more savings our income, and consume the income is for the last period. Due to this, it can higher the savings rate and also increase the economic growth because of more spending. This result is found at 1994. Another result is studied about a low level of domestic savings and potential consequences for a decreases of economic growth, he found that the domestic savings do not appear to constraints investment and hence growth. In the long-run growth theories that a country is able to grow faster when it under human capital, but the country for international capital market cannot grow faster by saving more. We not so considered the domestic savings because the investment can be financed by foreign saving. The key concepts is domestic savings is more important for adopting new technologies in developing, it is less care about developing the economies. This conclusion is proposed at 2001.

In 2005, a researcher analyzed both of the short-term and long-term periods, how the economic effect of rising national savings in the USA .In the short-run, the problem can found from the function of consumption to the economy. When the increase in savings, the consumption will be decrease, because people less consume and tend to more savings. It will slow down the economics growth in the short-run. In the long-run period, if the savings rate rises in there, it can cause the demand for financial assets increase. The increase in domestic savings might increase the net export and domestic investments, thus, it can promote economic growth in the long-run. Therefore, the increase of saving will slow down the economic growth in short run, however, it will increase the economic growth in the long run. At the next year, someone argued that the high domestic savings is more useful for the poorer countries when compared with other richer countries. In the poor countries, foreign investment needed to transfer cutting-edge technological knowledge to the local innovation sectors. The local banks can subsidize the projects to appeal to foreign investment. This cause the poorer countries needed more domestic saving to finance these costs of technological progress. So, the economic growth for poorer countries will be slow down. However, the local enterprise in richer countries not needs to attract the foreign investment. Hence, there is not significant effect on the economic growth in their local savings. So, the result of domestic saves in the richer countries in not higher.

On the other hand, some person found that savings is the negatively related to the net capital imports, but it was the opposite relation of positively with the exports in developing countries. After a few years, there is a conclusion about the relationships between economic growth and savings; it is a large range of different and more complex from country to country. There is an evidence come from some countries like Korea, although there is a low national savings rate, but the economic growth rates is high. It is due to Korean is spending more in goods and services instead of savings. If people consume more will increase the consumption and directly improve the economic. Conclude that, the higher national saving rates are benefit for rapid economic growth for many developing countries. In addition to, there is an increase in savings for the East Asian countries will affect the economic growth increase, and the savings habit formation will lead to a positive short-run response, even though there is no long-run effect on savings.

In 2006, a researcher addressed the domestic savings and economic growth for various type economics is different income levels. It was divided by three type which are low-income (LIC), low-middle income (LMC), upper-middle income (UMC) and high-income (HIC). It concluded using the data between 1960 to 2001 and Granger causality methodology. There are to test three different income levels how to influencing the direction of causality. The result after testing is, the direction is mixed in LICs, the causality from economic growth to saving in LMSs and also in HICs but except Singapore, and found that UMSs has a bi-directional causality is more prevalent. For the China, it is more belongs to LMCs. At the same year, someone mentioned that the high saving is more benefit for developing country like China. It is because the high savings rate and investment can stimulate the economic growth. The reason is people will more saving instead of less consume which will cause accumulate the capital's stock and hence the economic growth increase. Sometimes, the increase of savings will cause the investment reduce, because of the people less spending in the goods and services and it will affect the economic growth decrease.

All of the literatures are the different conclusions about the relationship between economic growth and savings growth. Based on different country conditions and the circumstances will be a different effect on savings. China is the special case under all the literatures, there have some following ways can help for it’s economic. It has a different from others studies by distinguishing between HHS and EPS, we will discuss individual the national savings as a whole and analyze their effect on economic growth. This will help to examine the relationship for each type of savings on the Chinese economic growth. It will test about the growth rate of real GDP Granger-causes the savings growth. China's economic growth is found to have long-run relationship between household savings and enterprise savings. It can help the policy makers to understand where it necessary and make the adjustments the future economic policies in order to achieve the rapid economic development and economic growth.