Pakistan Institute of Development Economics



Institutional Variations in Saving Behaviour in Pakistan

Author: Zafar Iqbal

Savings and investment are two variables that play a significant role in accumulation. Variations in these key variables have a significant impact on economic growth, employment and inflation. A thorough understanding of their determlnants provides an important insight into the development process and aids in policy formulation. Such knowledge is also necessary to trace the consequences on growth and employment which may work through savings and investment behaviour. A particularly useful approach to understanding the macro-behaviour of saving and investment is to conduct an empirical analysis in terms of institutional agents. In fact, most of the current work in Pakistan is restricted to estimating aggregate savings functions which are not sufficient for analysis of savings behaviour mainly because various institutional agents may respond differently to economic signals. For example, foreign interest rates may attract private savings to transfer abroad, while the public sector may generate its own savings in response to increasing foreign interest rates. It can also be argued that the inflow of foreign capital may encourage private savings through direct foreign investment and discourage public savings through the substitution effect. Many other examplescan be quoted on theoretical background. Therefore, it may be useful to estimate disaggregated saving functions. The question, “are there institutional variations in the savings behaviour of household. corporate and public sectors in Pakistan?” will be the main focus of this paper.

Zafar Iqbal

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