Dependency Ratio, Foreign Capital Inflows and the Rate of Savingsin Pakistan

Publication Year : 1992

National savings are critically important to help maintain ahigher level of investment which is a key determinant of economicgrowth. Although savings rates have fallen in many developing countriesduring the last two decades, Pakistan presents a unique picture ofexperiencing high rates of economic growth along with very low savingsrates. In fact, the national savings rate of Pakistan is not only lowcompared to that in many countries with per capita income about the sameas Pakistan’s but it is even lower to that in some South Asian countrieswith lower per capita income. Pakistan’s economic performance during thelast three decades has been impressive. Real gross national product(GNP) has grown at an average rate of 6.0 percent per annum since 1960.The national savings rate, on the other hand, has fluctuated around analmost horizontal trend (15 percent) during the same period. Thus,Pakistan’s saving performance and its overall economic performanceappear to be incongruous. Although the low savings rates have become amajor source of concern in recent years, not much attention has beendevoted to highlight the key determinants of saving in Pakistan. Inrecent years, few studies have been done on this issue using both thetime-series and cross-section data. Qureshi (1981); Abbot and DeRosa(1984) and Khan (1988) using time-series data have examined variousdeterminants of household/national savings. Qureshi (1981) concentratedon economic determinants and found income and its rate of growth, therate of return on financial assets and rate of inflation as key factorsinfluencing household savings in Pakistan.

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