National Savings Rates of India and Pakistan: A Macroeconometric Analysis

Savings provide the most important economic link between the past, present and future of a country. An adequate rate of national saving is regarded as an essential condition for achieving targets in the investment and growth rates. For these reasons,· the literature relating to savings and consumption with particular emphasis on their determinants-demographic, monetary, fiscal etc., has shown a phenomenal growth during the last half century. An up-to-date and comprehensive review of theoretical and empirical literature on savings made in Kazmi (1991) led to the conclusion that while literature on the determinants of savings (private, corporate and public) had proliferated over time, there was little work on the ‘quantification offactors’ causing a differential in the savings rates of two particular countries. This paper makes an attempt to fill this gap by a~opting a simple but innovative methodology which has been used for analysing the national savings rates of India and Pakistan and constitutes the following steps: (a) A regression model incorporating the major macroeconomic variables relevant for explaining the national saving behaviour was specified. (b) The estimation· of the model was instrumental in identification of the signs and magnitudes of coefficients of the variables of the model. Thus the variables could be classified in terms of their negative or positive correlation with the national saving rates. (c) The difference in the average values of the relevant macro variables of the two countries was estimated. This information as given in Table 1 for India and Pakistan for 1960-88 indicates that on an average basis Pakistan performed better than India in real growth rate, export ratio,