Micro Foundations of Savings Behavior in Urban Pakistan

Shaikh, Salman (2013): Micro Foundations of Savings Behavior in Urban Pakistan. Forthcoming in: 3rd IRC Proceedings, Szabist Karachi , Vol. 1, No. 1 (1 January 2014)

Abstract

Savings rate in Pakistan is one of the lowest in the regional countries. As a result, investment to GDP ratio has been dismally low as well. Low investment results in low capital formation and hence lower long term growth and hence low levels of development. The long term growth literature from Harrod (1939)-Domer (1946), Solow (1956) to Romer (1986) is almost unanimous on the role of savings in long term economic growth. There have been studies in past on the macroeconomic determinants of savings in Pakistan. But, few studies have explored micro foundations of savings behavior in Pakistan. This study uses primary data collected through survey questionnaire to study the micro foundations of savings behavior in urban areas of Pakistan. We use descriptive as well as inferential tools for our study. We use LPM, Logit and Probit models to explore the determinants of investment and precautionary motive for savings.

• Item Type: MPRA Paper
• Language: English
• Keywords: Savings, Intertemporal Consumption, Savings Motive, Investments, Rational Expectations, Asset Markets
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

References

Abid & Afridi (2010). “Assessing the Household saving Pattern of Urban and Rural Households in District Muzaffarabad.” Pakistan Journal of Life & Social Sciences, Vol 8 (2), pp. 137-141.

Ando, A., Modigliani, F. (1963). “The 'Life Cycle' Hypothesis of Saving: Aggregate implications and tests.” American Economic Review, 55-84.

Chaudhry, Imran S., Faridi, M. Zahir, Abbas, Muhammad & Bashir, Farrukh (2010). “Short Run and Long Run Saving Behavior in Pakistan: An Empirical Investigation.” Journal of Money, Investment & Banking, Issue 16, pp. 57-66.

Domar, Evsey (1946). Capital Expansion, Rate of Growth, and Employment. Econometrica, 14 (2), pp. 137–47.

Farhan, Muhammad & Akram, Muhammad (2011). “Does Income Level affect Saving Behavior in Pakistan? An ARDL Approach to Co-integration for Empirical Assessment”. Far East Journals, Vol 3 (3), pp. 62-71.

Friedman, M (1957). “A Theory of the Consumption Function”, Princeton University Press.

Hall, R (1978). “Stochastic Implications of the Life-Cycle Permanent Income Hypothesis”, Journal of Political Economy, Vol. 86, No. 6. (Dec., 1978), pp. 971-987.

Harrod, Roy F. (1939). An Essay in Dynamic Theory. The Economic Journal, 49 (193), pp. 14–33.

Hussain, M. Aasim (1995). “Long-run Determinants of Private Saving Behavior in Pakistan.” Pakistan Development Review. Vol 34 (4), pp. 1057-1066.

Keynes, J. M (1935). “The General Theory of Employment, Interest, and Money”, New York: Harcourt Brace & World.

Nasir, Shahbaz & Khalid, Mahmood (2004). “Saving-Investment behavior in Pakistan: An Empirical Investigation. Pakistan Development Review. Vol 43 (4), pp. 665-682.

Rehman, Hafeez-ur, Faridi, M. Zahir & Bashir, Farrukh (2010). Saving Behavior among Different Income Groups in Pakistan: A Micro Study. International Journal of Humanities and Social Science, Vol. 1 No. 10, pp. 17-29.

Romer, Paul M., (1986). Increasing Returns and Long-Run Growth, Journal of Political Economy, 94 (5), pp. 1002-37.

Solow, Robert M. (1956). A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics, 70 (1), pp. 65–94.