Research Planning Grant: Savings and Development

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9529949 Kochar While poverty is generally associated with low rates of saving, a striking feature of a number of developing countries is the coexistence of extreme poverty with high savings rates. In the South Asian economies, for example, poverty coexists with household savings rates which average 16% of disposable income. In such economies income growth appears to be constrained not so much by the rate of savings but by the apparent willingness of households to hold their savings in relatively low yielding forms. Understanding why this is so is critical for designing policy which enhances the productivity of savings, and, correspondingly, increases income. Surprisingly, there is little empirical research on this topic, despite its obvious importance. This research planning grant will permit the investigator to develop an empirical research program on the relative importance of expected marriage payments and the variability in earnings as motives for household savings in south Asian economies. This research carries important policy implications. The belief that income uncertainty and credit constraints motivate household savings and contribute to the poverty of households has resulted in an influential literature which advocates interventions in credit and insurance markets. In contrast, if households save for consumption expenses and if it is this which diverts assets from income-enhancing investments, the more effective policy would target investments in areas such as women's education and employment which may have the effect of reducing dowry payments.