Correlation Between Savings and Investments and Their Impact on Gdp in China, India and Pakistan

3760 WordsApr 12, 201016 Pages
INTRODUCTION The saving rate of any country is an important indicator of economic development since the domestic saving rate is directly related with the investment rate and the lending capacity of the banking system. Saving and investment are two key macro variables with micro foundations, which play a significant role in economic growth. Global emerging economies are experiencing record savings at a time when the developed world has been witnessing a decline in gross domestic saving rates, having a positive impact on the investment climate in these countries. Higher savings and investment rates eventually help in boosting GDP. This is another reason why GDP is growing faster in the emerging world than in the developed world. The…show more content…
The methodology that will be used in this study is correlation. DEFINITIONS & ASSUMPTIONS The savings of a specific sector is the difference between its disposable income and expenditure. In an economy, these sectors include households, enterprises (both private and public), and governments. Gross Domestic Savings = Gross Domestic Production - Total Expenditures Gross National Savings = Gross National Production – Total Expenditures Hence, gross national savings is the addition of gross domestic savings and net factor income from abroad plus private transfers. In both cases, savings can be split into private savings and public savings. Private savings originate from two main sectors of the economy, namely corporate sector, and the household sector. Corporate mean the surplus and undistributed profit of public and private corporations. (Sc). Household savings equal the disposable income of households and private non-profit organizations minus their consumption expenditure.(Sh) Government savings denote the difference between the government revenue though taxes minus government expenditures which is public savings, also known as the Budget surplus. In a closed economy savings are assumed to be equal to investments i.e. S = I, but in an open economy savings are not equal to investments as for a period of time, financial institutions can lend out (I)

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