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Savings, Investment, Growth and Financial Distortions in Pacific Asia and Other Developing Areas

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  • Maxwell Fry

Abstract

I estimate a simultaneous-equation model in which the real deposit rate of interest and the black market exchange rate premium affect saving, investment, export growth and output growth. The estimates corroborate earlier findings that directeffects of financial distortions on savings are minuscule. Because a major determinant of savings is the output growth rate, however, I find that saving is influenced substantially, albeit indirectly, by financial distortions through their effect on investment, export growth, and output growth. Simulations indicate that difference in the average values of the financial distortion variables explain approximately 50 percent of the difference in saving ratios and 75 percent of the difference in out put growth rate between five Pacific Asian countries and 11 countries in other developing areas. [E20, E44, F41, O11, O16]

Suggested Citation

  • Maxwell Fry, 1998. "Savings, Investment, Growth and Financial Distortions in Pacific Asia and Other Developing Areas," International Economic Journal, Taylor & Francis Journals, vol. 12(1), pages 1-24.
    • Handle: RePEc:taf:intecj:v:12:y:1998:i:1:p:1-24
    DOI: 10.1080/10168739800000001
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    6. Jalal U. Siddiki, 2002. "Unofficial Exchange Rates In Bangladesh: A Cointegration Analysis," Contemporary Economic Policy, Western Economic Association International, vol. 20(3), pages 288-300, July.
    7. Pradeep Agrawal, 2015. "Can Foreign Portfolio Investment Contribute to Post-2015 Development Goals in Asia?," Southern Voice Occasional Paper 26, Southern Voice.
    8. Mamoon, D., 2004. "Financial sector reforms in Pakistan and a test for McKinnon and Shaw's transmission mechanism : 'Lessons from the last decade'," ISS Working Papers - General Series 19157, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    9. Shahbaz Nasir & Mahmood Khalid, 2004. "Saving-investment Behaviour in Pakistan: An Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 665-682.
    10. Assa, Maganga & Abdi, Edriss K., 2012. "Selected Macroeconomic Variables Affecting Private Investment in Malawi," MPRA Paper 40698, University Library of Munich, Germany.
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